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

Most Recent Comments Via Twitter

Tuesday, March 3rd, 2015

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.

Stocks Continue To Have An Opportunity Cost Advantage

Monday, March 2nd, 2015

Investment A vs. Investment B

Investment capital is always looking for a home. Stocks continue to benefit from easy money policies around the globe. From Reuters:

“Money is continuing to pour into the (equities) market because of low interest rates, and although stocks are somewhat expensive they’re not overly expensive,” said Stephen Massocca, chief investment officer at Wedbush Equity Management LLC in San Francisco.

Data Says Low Rates May Last

If inflation starts to rear its ugly head, the Federal Reserve will be forced to raise interest rates. Recent data says that does not appear to be an imminent scenario. From The Wall Street Journal:

“The price index for personal consumption expenditures, which is the central bank’s preferred inflation gauge, rose 0.2% in January from a year earlier. That followed annual growth of 0.8% in December, 1.2% in November and 1.4% in October, the Commerce Department said Monday. It was the lowest reading for headline inflation since October 2009, when prices rose just 0.1% from a year earlier following seven months of year-over-year price declines as the 2007-09 recession ended.”

The Big Picture

This week’s stock market video examines the bigger risk-reward picture given last week’s stall in equity prices.

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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Investment Implications – The Weight Of The Evidence

From a January 30th CCM video clip when the S&P 500 was trading at 1,994:

“We know with this 100% certainty… if we are to go into a three-week correction, a three-month correction, or a three-year devastating, hard-to-recover-from bear market, it is not physically possible for any of those three things to happen until the S&P 500 makes a lower low on a closing basis (below 1988). As you can see, it has not made a lower low…”

The S&P 500 never closed below 1988; today it sits at 2117, or 123 points above the January 30th close, which illustrates the usefulness of simple support and investment guideposts. Today’s “be patient with our stocks” guideposts include 2090 and 2064.

Win image from Garry Knight via Flicker (image altered).

Have The Breakouts Failed?

Friday, February 27th, 2015

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.

Video

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Video Coming Soon

Friday, February 27th, 2015

It should be posted sometime before midnight ET Friday. It will cover many useful charts.

Are The Bullish Breakouts Holding?

Wednesday, February 25th, 2015

Yellen Shifts Gears

The Federal Reserve hopes market participants have come to accept a rate hike is on the way, allowing the central bank to avoid another taper-tantrum type event. From The Wall Street Journal:

According to Janet Yellen, If the economy continues to strengthen as the Fed anticipates and officials become more confident that low inflation will rise toward their 2% goal the central bank “will at some point begin considering an increase in the target range for the federal funds rate.” With that assessment, Ms. Yellen took an incremental step, shifting the central bank away from promises that interest rates will stay low and toward a discussion of when and how fast they will move up.

So Far, So Good

Last week, the broad NYSE Composite Stocks Index finally posted a new high after failing to do so for over six months. In the wake of Yellen’s “a rate hike could be coming” remarks, the market is holding last week’s gains (see chart below).

This week’s stock market video covers the NYSE new high in more detail along with numerous other bullish developments.

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.

Video

Video

Investment Implications – The Weight Of The Evidence

Since noting there was a fine line between patience and risk management on January 15, the S&P 500 has gained over 120 points. The weight of the evidence, as tracked by our market model, has shown incremental improvement in recent weeks, allowing us to remain patient with stock-related positions. The bearish case will regain some traction if the S&P 500 closes below 2090 this week. As always, the market will guide us if we are willing to listen with a flexible and open mind.

Stocks: Big Changes On Charts

Friday, February 20th, 2015

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.

Video

Video

Recent Spike In Rates – What Does It Mean For Stocks & Bonds?

Friday, February 20th, 2015

The table below shows the recent move in ten-year yields (interest rates) is one of the largest in the last 45 years. The data is another example of excellent work from fellow Yahoo Finance contributor Chris Kimble of Kimble Charting Solutions.

For those of us who own stocks or bonds, a logical question is:

How did stocks and bonds perform after the other historical spikes in interest rates?

To find the answer, we looked at the performance of the S&P 500 and long-term Treasuries (TLT) after the dates shown in the Kimble table above. Two of the most recent dates were removed from our study (2/17/15 and 2/13/15). We choose TLT over IEF since TLT is much more actively traded. Based on the eight periods studied, the average gain in the S&P 500 one year after a big spike in interest rates was 19.14%. The short-term performance of stocks was typically more subdued.

Long-term treasuries outperformed stocks on average in the first 30 days following significant jumps in 10-year yields.

Averages and medians are helpful, but it is also prudent to review all of the historical examples to better understand the range of reasonable outcomes. If these limited cases from history prove to be value-add, stocks could experience some weakness over the next month or so.

On the bond front, the next 30 days could prove to be better than the last 30 days.

Our approach, as always, will be to remain open to all market outcomes. However, this analysis aligns with other evidence that says stocks could surprise on the upside over the next 12 months.

Rocket image from U.S. Navy via Flickr

Most Recent Comments Via Twitter

Thursday, February 19th, 2015

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.

Using Energy As A Guide For Stocks

Thursday, February 19th, 2015

Key Levels For Energy Bulls And Bears

In a February 3 tweet (below), we noted market participants could gain some valuable insight into economic dynamics by keeping an eye on energy stocks (XLE).

Thus far, energy stocks have been unable to break the 82.10 level noted two weeks ago.

If XLE can clear the 82.10 to 84.62 barrier, and hold above that range, the odds will improve relative to “scenario three” as described in detail on January 27.

Myth: Stocks Can’t Do Well When Energy Is Weak

The point of the exercise is not to assess bullish and bearish odds for stocks, meaning stocks can go up within the context of a weak energy sector (see table below). The fate of energy stocks can assist us with the relative attractiveness of inflationary assets (e.g. energy) and deflationary assets (bonds).

Image from jinterwas via Flickr (image altered).

Greece vs. Lehman Brothers: One Significant Difference

Tuesday, February 17th, 2015

The No Deal Scenario

Using common sense as a guide, most market participants believe another kick-the-can deal will be made with Greece. If we assume, hypothetically, the lower probability scenario plays out (no deal), could the markets be facing a scenario similar to the collapse of Lehman Brothers in 2008? According to Marius Daheim, senior consultant at SEB via Reuters, there is one significant difference:

“There are no legal procedures for a member country’s exit from European Monetary Union. Greece cannot be forced to exit. However, once having defaulted, Greece may chose to negotiate an exit agreement. This would incur strong losses for its creditors, but as these are mainly European taxpayers, the fallout on financial markets should be contained. Grexit is not going to be another Lehman-type event.”

Breakout or Stock Market Fake Out?

This week’s stock market video looks at the bigger picture within the context of Greece-related uncertainty to help assess the odds of the recent breakout in the stock market avoiding the tag “failed breakout”.

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.

Video

Video

Investment Implications: The Weight Of The Evidence

It is too early to assess the longer-term implications of last week’s bullish action in stocks. The positive step by the bulls becomes more meaningful each day the S&P 500 can close over 2090. Given what we know today, a equity-heavy allocation remains prudent from a risk and reward perspective.

Image from Ronny Siegel via Flickr.