Archive for the ‘Stocks - U.S.’ Category

Stocks: The Forest And The Trees

Monday, July 24th, 2017

Taking A Big Step Back

The expression “the market needs to consolidate its gains” applies to all timeframes, from 60 minutes to 60 years. The chart below shows the NYSE Composite consolidating between 1965 and 1982. After the consolidation period ended, stocks surprised on the upside between 1982 and 2000.

A similar “the market needs to consolidate its gains” period occurred between 1997 and 2016. The recent break above the orange consolidation box tells us to be open to much better than expected outcomes in the stock market over the next 5 to 15 years. The longer the 2016 bullish breakout holds, the more relevant it becomes.

“To change ourselves effectively, we first have to change our perceptions.”

Stephen Covey

Volatility To Ignore Or Volatility To Respect

This week’s video takes a detailed look at a major market top to help us better discern between stock market volatility to ignore and stock market volatility to respect. The video also looks at the pros and cons of building a portfolio based on asset class correlations.

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Nowhere Man

The NYSE Composite was trading at the exact same level in May 1997, February 2003, and February 2009 (stocks made no progress for 11.74 years). The NYSE Composite was trading at the same level in October 2007 and July 2016 (stocks made no progress for 8.75 years).

As illustrated via the big move after the breakout in 1982, the longer a market goes sideways, the bigger the move we can expect to get after a breakout or breakdown.

2013-16, Like 1980-82, Was A Unique Period

Just as 1982 was significantly different from 1955, 2016 was significantly different from 1982. Each period in history has its own unique mix of economic and technical data. Stocks rallied for years after breaking out in both 1955 and 1982; a similar breakout occurred in the NYSE Composite and NASDAQ in 2016. The S&P 500 started the current breakout cycle in 2013.

A Market Many Of Us Have Not Seen

It is very possible the stock market’s behavior between 2016 and 2034 will be significantly different from its behavior between 1997 and 2015. Therefore, our approach to the markets needs to be flexible enough to handle the possibility of much stronger and sustained trends than what we have seen in our investment lifetimes.

“Intelligence is the ability to adapt to change.”

Stephen Hawking

Volatility To Ignore Or Volatility To Respect?

Friday, July 21st, 2017

Correlations/Foreign ETFs

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Video Update

Friday, July 21st, 2017

Video will most likely be posted after midnight ET.

Is Volume/Breadth Aligned With Bullish Case?

Monday, July 17th, 2017

An August 2016 analysis outlined a long-term bullish signal for stocks that has occurred only ten other times in the last thirty-five years. If we fast forward to July 2017, is market breadth/volume aligning with or contradicting bullish data we have in hand?

The chart below shows up/down volume (1996-2010) for the NYSE Composite Stock Index, along with its 50-week moving average (thick blue line).

Notice how all-things-being equal, the probability of bad things happening increases when the 50-week moving average is flat or negative (see orange and red arrows below). Conversely, the probability of good things happening increases when the 50-week moving average turns back up in a bullish manner (see green arrows below). The S&P 500 is shown at the bottom of the image below for reference purposes.

Trend Flipped In Favor Of The Bulls In 2016

In simplified terms, volume patterns shifted from favoring declining issues in early 2016 to favoring rising issues in the second half of 2016 (see green arrow below).

Is The Bullish Bias Still In Play?

As shown in the chart below, the slope of the 50-week moving average still favors good things happening over bad things happening looking out weeks, months, and years. The chart below is dated July 17, 2017.

The Long-Term Outlook For Stocks

This week’s video updates numerous long-term signals covered over the past year. The video covers facts rather than opinions or fears of what may or may not happen in the future.

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A Foolproof Signal?

Since there is no such thing as a foolproof indicator or signal in the financial markets, the recent bullish shift in up/down volume assists us with probabilities. As long as the slope of the 50-week remains positive, the odds of good things happening will be higher.

Long-Term Means Long-Term

The facts covered above relate to longer-term outcomes, meaning weeks, months, and years. For this data to be used effectively, we must have realistic expectations about normal volatility within the context of a rising trend.

The Long-Term Outlook For Stocks

Friday, July 14th, 2017

Are Previous Signals Still In Place?

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Is The NASDAQ Showing 2007-Like Cracks?

Tuesday, July 11th, 2017

Facts Instead Of Forecasts

The definition of a fact is a thing that is indisputably the case. The chart below shows the long-term trends in the NASDAQ rolling over in late 2007. The chart presents a set of indisputable facts. Notice in late 2007/early 2008:

  1. The fastest weekly moving average (blue) crossed below the other moving averages and resided on the bottom of the moving average cluster.
  2. The slopes of all the moving averages flipped over from bullish (up) to bearish (down).

The facts above were observable on January 7, 2008 with the NASDAQ trading at 2,500. After this set of “the trend is rolling over” facts were present for all to see, the NASDAQ dropped from 2,500 to 1,268, a loss of 49%. No predictions or forecasts were needed to observe the evidence on January 7, 2008. The waning look of the NASDAQ’s trend in early 2008 spoke to increasing probabilities of bad things happening.

How Does The Same Chart Look Today?

The July 11, 2017 chart below also presents a set of indisputable facts. Instead of the NASDAQ having the concerning “the trend is rolling over” look, the blue moving average remains on top and the slopes of all the moving averages are positive, which is indicative of a bullish trend.

What Does A Healthy Market Look Like?

The chart below shows the same set of facts as of June 28, 2013, when the NASDAQ was trading at 3,403. After we could see the constructive trend on June 28, 2013, the NASDAQ gained an additional 53% before hitting an intermediate-term peak on July 20, 2015.

A Tectonic Shift In Tech

As outlined on June 2, numerous technology stocks have broken out from very long consolidation periods in a “something big could be going on here” manner. A significant shift in the industry’s focus and market potential was highlighted by MarketWatch:

Jefferies equity analyst Mark Lipacis came to that conclusion Monday, reporting in a note that Intel Corp. INTC, +0.10% stands to take a hit in its data-center business amid a move to a new computing paradigm focused on artificial intelligence and connected devices that he believes represents a “tectonic shift” in technology. Instead, Nvidia Corp. NVDA, +0.15% is best-positioned to be the chip leader in the new landscape, Lipacis wrote.

What Are The Facts Telling Us In July 2017?

Given the future is highly uncertain, investment odds can be improved by allocating capital based on facts and adjusting when the facts change. This approach relies on present day facts, rather than uncertain forecasts of what may or may not happen. This week’s video looks at present day facts and compares them to the facts near major bearish turning points. In the present day context of ongoing concerns about North Korea, the Fed, and economy, the video shows numerous examples of the power of staying in the now.

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How Can This Help Us in 2017?

Since economic and market outcomes are based on the future actions of millions of consumers and investors around the globe, logic tells us no one can consistently predict where the economy and markets are headed. If the best football handicappers don’t perform much better than a coin flip when trying to predict what will happen when 22 players compete for just 60 minutes, how can we expect someone to accurately forecast the actions of millions of consumers and investors 12 months in advance?

“I learned that an opinion isn’t worth that much. It is more important to listen to the market. I became a reactive trader as opposed to an opinionated trader.”

Brian Gelber
Market Wizards

The present day chart of the NASDAQ is a factual piece of evidence, which is significantly more reliable than a 50-50 forecast of what may or may not happen in the future. The present day trend in the NASDAQ remains constructive from a long-term perspective, which is a factual statement.

If the facts begin to shift, which is possible at any time, then market probabilities will shift as well, allowing us to make necessary and prudent adjustments to our growth-oriented portfolios. Keep in mind, “constructive from a long-term perspective” speaks to months and years. The present day trends allow for normal and 100% to be expected pullbacks and corrections within the context of a long-term bullish trend.

Investing: The Incredible Power Of Staying In The Now

Monday, July 10th, 2017

1982: A Bed Of Roses?

Eckhart Tolle’s New York Times Best Seller The Power Of Now has sold over 3 million copies worldwide and has been translated into over 30 languages. The basic premise of the book is captured in the excerpt below:

“Nothing has happened in the past; it happened in the now. Nothing will ever happen in the future; it will happen in the now.”

The Twin Thieves: Fear and Regret

Our entire investing lives have taken place in the now. We have never executed a buy order in the past, nor have we ever executed a sell order in the future. However, we have all wasted a considerable amount of mental energy thinking about the past or worrying about the future.

The Past Is Yesterday’s News

Investors cannot go back in time. Dwelling on the past can expend a tremendous amount of emotional capital that could be used to make sound and rational decisions in the present.

“Sometimes letting things go is an act of far greater power than defending or hanging on.”

Eckhart Tolle

No One Can Predict The Future – So Why Waste Time And Energy On It?

Since economic and market outcomes are based on the future actions of millions of consumers and investors around the globe, logic tells us no one can consistently predict where the economy and markets are headed. If the best football handicappers don’t perform much better than a coin flip when trying to predict what will happen when 22 players compete for just 60 minutes, how can we expect someone to accurately forecast the actions of millions of consumers and investors 12 months in advance?

How Can The Now Help With Investing?

Would you rather invest based on a forecast with 50-50 odds or would you prefer to invest based on information known with almost 100% certainty? The future is very uncertain, but we can understand the current profile of the financial markets and economy with near 100% certainty.

What Are The Facts Telling Us In July 2017?

Given the future is highly uncertain, investment odds can be improved by allocating capital based on facts, and adjusting when the facts change. This approach relies on present day facts, rather than uncertain forecasts of what may or may not happen. This week’s video looks at present day facts and compares them to the facts near major bearish turning points. Even in the present day context of ongoing concerns about North Korea, the Fed, and economy, the video shows numerous examples of the power of staying in the now.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

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Was The Economy The Same In 2007 and 2009?

One method to stay in the investing now involves monitoring and adjusting. Do you believe there were discernible differences between the market’s technical profile when stocks peaked in October 2007 and when they bottomed in March 2009? Do you believe the known economic data was discernibly different before and after the financial crisis (October 2007 vs. March 2009)? If the answers are yes, then it is logical to assume there were discernible incremental changes in the hard evidence between October 2007 and March 2009.

1982: Would You Have Predicted An 18-Year Rise In Stocks?

If your self-talk is something along these lines, “Stocks cannot go up given all the problems in the world today”, then ask yourself how many people felt the same way in 1982?

The events below took place in 1982, or in the first year of an 18-year bull market in stocks:

  1. A brief but severe recession began in the United States.
  2. The Hama massacre began in Syria.
  3. Syrian president Hafez al-Assad ordered the army to purge the city of Harran of the Muslim Brotherhood.
  4. London-based Laker Airways collapsed, leaving 6,000 stranded passengers and debts of $270 million.
  5. The DeLorean Motor Company Car Factory in Belfast was put into receivership.
  6. The United States placed an embargo on Libyan oil imports, alleging Libyan support for terrorist groups.
  7. The Falklands War began: Argentina invaded and occupied the Falkland Islands.
  8. Argentina invaded South Georgia.
  9. A blizzard unprecedented in size for April dumped 1–2 feet of snow on the northeastern United States, closing schools and businesses.
  10. The nuclear submarine HMS Conqueror sank the Argentine cruiser General Belgrano, killing 323 sailors.
  11. Spanish priest Juan María Fernández Krohn tried to stab Pope John Paul II with a bayonet during the latter’s pilgrimage to the shrine at Fatima.
  12. Braniff International Airways declared bankruptcy and ceased all flights.
  13. Hussain Muhammad Ershad seized power in Bangladesh.
  14. The 1982 Lebanon War began.
  15. A rally against nuclear weapons drew 750,000 to New York City’s Central Park.
  16. The body of “God’s Banker”, Roberto Calvi, chairman of Banco Ambrosiano, was found hanging beneath Blackfriars Bridge in London.
  17. ASLEF train drivers in the United Kingdom went on strike over hours of work.
  18. Pan Am Flight 759 (Boeing 727) crashed in Kenner, Louisiana, killing all 146 on board and 8 on the ground.
  19. Checker Motors Corporation ceased production of automobiles.
  20. The Reverend Sun Myung Moon was sentenced to 18 months in prison and fined $25,000 for tax fraud and conspiracy to obstruct justice.
  21. The Provisional IRA detonated 2 bombs in central London, killing 8 soldiers, wounding 47 people, and leading to the deaths of 7 horses.
  22. Torrential rain and mudslides in Nagasaki, Japan destroyed bridges and killed 299.
  23. In Beaune, France, 53 persons, 46 of them children, died in a highway accident (France’s worst).
  24. Attempted coup against government of Daniel Arap Moi in Kenya.
  25. Italian Prime Minister Giovanni Spadolini resigned.
  26. Mexico announced it is unable to pay its large foreign debt, triggering a debt crisis that quickly spread throughout Latin America.
  27. Italian general Carlo Alberto Dalla Chiesa was killed in a Mafia ambush.
  28. Iowa paperboy Johnny Gosch was kidnapped.
  29. Lebanese President-elect Bachir Gemayel was assassinated in Beirut.
  30. The Lebanese Christian Militia (the Phalange) killed thousands of Palestinians in the Sabra and Shatila refugee camps
  31. In Israel, 400,000 marchers demanded the resignation of Prime Minister Menachem Begin.
  32. The 1982 Chicago Tylenol murders occurred when 7 people in the Chicago area died after ingesting capsules laced with potassium cyanide.
  33. Helmut Kohl replaced Helmut Schmidt as Chancellor of Germany through a constructive vote of no confidence.
  34. During the UEFA Cup match between FC Spartak Moscow and HFC Haarlem, 66 people were crushed to death.
  35. A gasoline or petrol tanker exploded in the Salang Tunnel in Afghanistan, killing at least 176 people.
  36. Camerun president Ahmadou Ahidjo resigned, replaced by Paul Biya.
  37. Minneapolis Thanksgiving Day fire destroyed an entire city block of downtown Minneapolis, including the headquarters of Northwestern National Bank.
  38. The first U.S. execution by lethal injection was carried out in Texas.
  39. The December murders occurred in Suriname.
  40. An earthquake (Richter Scale 6.0 magnitude) in Dhamar, northern Yemen, killed at least 1,507.
  41. The United Freedom Front bombed an office of South African Airways in Elmont, NY and an IBM office in Harrison, NY.
  42. The United States Environmental Protection Agency recommended the evacuation of Times Beach, Missouri due to dangerous levels of dioxin contamination. Source: Wikipedia

Investment Implications

The concept of staying in the now is based on probabilistic outcomes, or if you prefer probabilistic forecasting. Probabilistic forecasting is based on known information rather than where someone believes the data or markets will be in the future. When the “knowns” change, adjustments can be made in the now. As shown in the video above, the present day facts still favor good things happening relative to bad things happening, which is reflected in our growth-oriented investment allocations.

What Is Asset Class Behavior Telling Us About Risk/Reward?

Friday, July 7th, 2017

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Most Recent Comments Via Twitter

Thursday, July 6th, 2017

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

New Dow Theory Signal - What Does It Mean For Stocks?

Wednesday, July 5th, 2017

Charts Monitor, Rather Than Dismiss Fundamental Data

Critics of technical analysis often mistakenly believe that using charts discounts the importance of fundamental data, such as earnings, employment, and economic growth. Charts allow investors to monitor the aggregate investor interpretation of all the fundamental data. Said another way, charts are efficient tools allowing us to monitor vast amounts of fundamental data, which is important since fundamentals ultimately determine the market’s long-term fate. When the economy is healthy, stocks tend to beat bonds. When economic fear dominates, bonds tend to beat stocks. In this article, we will cover the latest signal from the markets that came on July 3.

Dow Theory Is Based On Economic Common Sense

Dow Theory is based on a series of Wall Street Journal articles written by Charles Dow. The basic tenets of Dow Theory are easy to understand. Charles Dow believed that:

  1. In order for industrial companies to increase their earnings, they had to produce and sell more goods.
  2. If industrial companies are selling more goods, then transportation companies must be delivering more goods to retailers and wholesalers.
  3. Therefore, in a healthy economy, both industrial companies and transportation companies should be experiencing revenue growth.
  4. If industrial and transportation companies are growing their revenues, then the industrial and transportation stocks should be attractive to investors.
  5. If industrial and transportation companies are doing well and are attractive to investors, both the Dow Jones Industrial Average and the Dow Jones Transportation Average should be making new highs, serving to confirm a healthy economy.

Behind The Averages

After reviewing the companies in the industrial and transportation averages, it is easy to see why they represent logical vehicles to monitor the pulse of the U.S. economy. In 2017, our economy is driven by more than just industrial or manufacturing companies. The present day Dow Jones Industrial Average contains traditional producers, such as IBM (IBM), 3M (MMM), Boeing (BA), Chevron (CVX), and Johnson & Johnson (JNJ). However, the Dow (DIA) also contains Visa (V), Goldman Sachs (GS), and American Express (AXP), since the present day economy relies heavily on the financial sector. The Dow Jones Transportation Average (IYT) still has railroads, such as Union Pacific (UNP) and Norfolk Southern (NSC), but it also contains more modern logistics companies, such as United Parcel Service (UPS), Fed-Ex (FDX), and J.B. Hunt (JBHT).

Just Reconfirmed Primary Bull Market

If investors believe industrial and transportation stocks are healthy and thus, attractive investments, that speaks to demand. When demand is strong, stock prices rise. Despite recent stock market volatility, the Dow Jones Industrial Average broke out and posted a new high in early June. Notice the slope of the blue 50-day moving average in the chart below; you can compare it to the early stages of a 2011 correction in stocks and to the 2008-2009 bear market later in the article.

Similarly, the Dow Jones Transportation Average also posted a new high on July 3. Again, note the look of the blue 50-day moving average.

How Can Stocks Continue To Climb With Weak Growth And The State Of The World?

This week’s stock market video addresses two major questions: (1) Is the party ending for the NASDAQ? and (2) Have stocks exceeded expectations in the past after a period of tepid growth and political instability?

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2011: How Can This Help Us Manage Risk Today?

If Dow Theory offers a way to monitor the aggregate interpretation of the economy, earnings, and central bank policy, then we would expect charts of the DJIA and DJTA to be helpful in terms of managing investment risk. Since a picture is worth a thousand words, when the Dow’s 50-day rolled over in 2011 (see orange arrows below), the index dropped an additional 16%. Notice how the Dow failed to make a new closing high before the big reversal in 2011. As of July 2017, the 2014 Dow chart looks much better (slope of 50-day is up, recent higher high).

2007-2009: Economic Pessimism And Investor Fear

Similar economic warnings came in 2007 and 2008 (see orange arrows in chart below). Notice during the 39% drop in the Dow in 2008 the 50-day never gave a “things are improving” signal, meaning it was helpful from a cash-redeployment perspective. In late 2007/early 2008, Dow was not making new highs; instead it was making a series of lower lows, which reflected a period of economic pessimism and investor fear. The 2017 chart of the Dow looks much better, which is indicative of more favorable economic expectations.

The differences are easy to see side-by-side. The stronger bullish conviction tells us even if stocks pull back in the short-run, the odds are good that buyers would step in and attempt to test the recent highs. Reversals tend to be a process rather than a one-day binary event. The charts below speak to probabilities.

Investment Implications – Time To Pay Closer Attention

Does the recent Dow Theory bullish confirmation mean it is all fun and games for the economy and stock market? No, it simply tells us the market is currently healthy and the next bout of significant weakness is more likely to be a correction, rather than a full-blown bear market. A correction always remains a possibility in 2017.

For Further Study

  1. Are Stocks In A Bubble That Is About To Burst?
  2. Will Narrow Framing Cause Many To Miss A Generational Rally In Stocks
  3. How Concerning Are Predictions Of A Stock Market Crash?