It Still Doesn’t Have to Be Rocket Science

The old saying that “It Doesn’t Have to be Rocket Science” when it comes to the markets got to be an old saying by being true for all these years.  Despite all of the increases in technology and computer speed, in the end it mostly comes down to “Is price rising or falling?”  Let’s consider one the simpler approaches.

The Trend

Figure 1 displays four major indexes – The Dow, the S&P 500, the Nasdaq 100 and the Russell 2000. 

Figure 1 – 4 Major Indexes and their 200-day moving averages (Courtesy AIQ TradingExpert)

There is a great deal of useful information contained in these four charts.  To wit:

*3 of the 4 are presently below their respective 200-day moving averages, i.e., in “downtrends”

*The 200-day moving average for all but the Nasdaq has now “rolled over” and is declining

Interpretation can be fairly simple:

*If these trends do not change, more trouble lies ahead

That wasn’t so difficult, was it? 

Of course, for most people that’s “not good enough.”  We want to know in advance IF these trends will or will not persist.  My candid reply is “Good luck with that.”

My other response is “be patient, and keep a close eye on these indexes and these moving averages”:

*If the indexes fail to get back above these moving average, more pain is likely to unfold (see here and here)

*If the Nasdaq fails to hold above its moving average and joins the others, chances are serious defensive action (i.e., raise cash, hedge, etc.) is in order

*If the 3 down trending indexes follow the Nasdaq higher (and also this) then the worst is likely over and a much more aggressive investment stance would be warranted.

In the immortal words of Tom Petty: “The waiting is the hardest part.”

See also Jay’s “A Strategy You Probably Haven’t Considered” Video

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented represents the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

The Bartometer

May 8, 2020

Hello Everyone,

I hope all of you are keeping healthy in this pandemic. Some of you may have had the COVID-19 virus or have a family member who may have contracted it, but for the most part as a whole, we are working together to get through this and doing okay.

RECAP:

Last month I illustrated the previous time we have a virus that was similar to the Coronavirus, and that was the Spanish Flu back in 1918. It was a horrible time where more than 51 million and some estimates are up to 100 million people died. More than 675,000 people died from the Spanish flu in the U.S. It infected more than 50 million people worldwide and was a disaster. There was very little anyone could do during that time, and there was little medicinal relief. The Spanish Flu is called the most significant
medical holocaust in history. And yet the stock markets in this country fell 34% from the beginning of the flu to the lowest part in the stock market. A year later, it went up 80% approximately from its low to its high. Am I saying this will happen again? No, I’m not planning on it, but if the world recovered from a 50 million person loss and a massive pandemic it had when the world population was much smaller, then we should recover and move beyond this as well.

Over the last month, the stock and bond markets, especially the NASDAQ, have soared with the NASDAQ now up 1.66% for the year. The reason is that with most people confined to their homes, stocks like Amazon, Google, Netflix, Facebook, Microsoft, Zoom, DocuSign, and more are being used, contributing to their earnings and revenues dramatically. Stocks like Airlines, cruise ships, restaurants, manufacturing, and many more are not doing well. That is why you will see below that the sectors in terms of which areas are declining and which are growing are very different.

CURRENT TRENDS:

The growth sector has done relatively well, but only a few large companies have contributed. These few large companies are why the Equal Weighted S&P 500 is -16.2% but the regular S&P is down 9%. I continue to like the large tech and health care companies, the NASDAQ is nearing the end of its game, and it is not much below its high it hit in February. The Midcaps are down 18-23% this year, and particular issues have more of a potential move upward, in my opinion. A year or two out from this point, I think this sector and the markets should be nicely higher. Can it go down from here into the fall and winter if we have a second wave down? Absolutely, but it is an excellent time to add money to your equity side in a diversified portfolio over the next 6 months. Many people are doubling up their contributions on a monthly basis. If you are more than five years before retirement, you may want to think about doing something similar. If stocks are cheap then isn’t it smart to buy when they are reasonably priced if over the long term the market should be higher?

Have we gone down this much over the last 50 years? Yes, many times. Has it recovered each time? Yes. Because capitalism works and good companies over the long term make money, we are all in this together.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until May 8, 2020. These are passive indexes.
Dow Jones -14.0%
S&P 500 -9.0%
EQUAL WEIGHTED S&P 500 -16.1%
NASDAQ Aggressive growth +1.66%
I Shares Russell 2000 ETF (IWM) Small cap -20%
Midcap stock funds -18-23%
International Index (MSCI – EAFE ex USA -19.0%
Financial stocks -27%
Energy stocks -34%
Healthcare Stocks -.50%

Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration -8.5%
High Yield Merrill Lynch High Yield Index -9.4% Floating Rate Bond Funds -7.3%
Short Term Bond -3.52%
Fixed Bond Yields (10 year) .68% Yield
As you see above, the only index doing well is Large tech. You should have this sector, but most everything else is starting to recover.

Classicalprinicples.com and Robert Genetskis Excerpts:

After soaring a week ago, stock prices turned mixed. The Nasdaq and Nasdaq 100 were up 1% and 4%, while the S&P 500 and Dow fell 1%, and small caps were down 2% to 4%.

The economic collapse in April has led forecasters to revise downward estimates of the decline in output, employment, and profits. Last week I expected the economy would begin to recover in May. It will. Unfortunately, ongoing restrictions from Governors and the stimulus bill will limit the initial stage of the recovery. Due to these current restrictions, means the economy will not show signs of a meaningful recovery until June at the earliest.

As a result, the financial damage to the economy in terms of lost output, jobs, wages and salaries, profits and debt will continue for another month

While several technology companies are holding up well, non-tech companies are suffering. And few companies are willing to guide earnings.

The 800-pound gorilla continues to be the outlook for the virus. Containing the spread of the virus remains a crucial problem.

Some countries and states succeed without a lockdown, while others are less successful. Due to the differing results, it raises the near-term uncertainties over how quickly the economy can recover. If setbacks occur, stocks will be vulnerable.

Despite a 15%+ unemployment rate in April and probably higher in May, the stock prices continue to anticipate better times and a recovery in the markets. I am optimistic longer term for the stock markets, although the short term could be more volatile.

Dr. Genetski’s opinion is that every person and circumstance is different. There are no guarantees expressed or implied in any part of this correspondence.
Source: Classical Principles.com

DOW JONES

As you can see the Dow went down to the 18,300 level and has risen to the 50% Fibonacci Level at 23,901. In other words when markets decline, they tend to retrace much of the decline at the 23.8%, the 50% the 61.8% and the 78.6% level and stall and reverse. Notice at the 23901 level the Dow tended to hang around there for a couple of weeks and tried to go up to the next level at the 25236 level. This is the next level where the Dow Jones could stall if it keeps rising. The Dow Jones is made up of a lot of large industrial, and value stocks that have really not participating in the rally as much as the NASDAQ tech stocks seen on the next page. Watch for a trend line break of 23901 to confirm another down leg to the 22565 if it is on big volume. This is short term. Long term I am still positive over the next 2 years or so, when we get a vaccine and a treatment, and more herd immunity.

The SK-SD stochastics model. If it is above the 88 level like it is now the market is a little over bought and this means don’t buy now short term.
Volume over the last month or so the market has been rising on low volume. This means people are afraid to commit and there may not be a lot of conviction on the rally.

NASDAQ QQQ

The true Champ this year again has been the NASDAQ. These stocks include, Facebook, Amazon, Docusign, Paypal, Mcrosoft, Netflix, etc. All of the stocks that benefit by you and your businesses being home. This QQQ are the top 100 NASDAQ stocks and is now up 3% plus for the year while everything else in the normal world is down 16-38%. The QQQ is now getting a little OVERBOUGHT so I would not go out and buy a bunch of tech stocks here. In fact, the QQQ is approaching a pretty substantial resistance level. The first is a gap fill and could bring the QQQ to 230.55 and reverse or it could reach its old high of 237 and reverse. Longer term I think it will break through the old high, but we are now getting to a point I think the QQQ has gone up as far as it should. So watch the 230.55 to fill the gap and reverses or the old high of 237 area.

The SK-SD Stochastics is overbought just like it was in the Dow Jones.
The Momentum indicator gave a Buy signal at the blue arrow as it as the pink crossed the blue line, if it crosses the blue lien going down it is a SELL. This large tech area is still long term bullish, but short term I would take a few chips off the table as an index. The midcap, small cap and large cap value sector has a lot more to recover.

If the QQQ falls or closes below 216.8 or breaks the trend line I am getting Cautious to very Cautious.

SUPPORT LEVELS:

 Support levels on the S&P 500 area are 2882, 2796, 2649, and 2500. These might be accumulation levels, especially 2649, or 2500. 2936 and 3015 is resistance.
 Support levels on the NASDAQ are 9036, 8612, and 7856 Topping areas 9323 to 9573.
 On the Dow Jones support is at 23,901, 22,569, and 20912. Topping areas 25,236 and 27,077.
 These may be safer areas to get into the equity markets on support levels slowly on the accumulation areas.

THE BOTTOM LINE:

The market has rebounded nicely over the last month mainly on the NASDAQ tech stocks that benefit from people staying at home and using all of the tech companies to their benefits. This stay “at home” policy has increased demand for technology, and why the internet stocks have done so well. The other part of the markets from the financial to energy and other value stocks are still down from 18-33%. It is all about the growth sector that is benefiting the most. Over the long term, I am very bullish on the market, but over a short time, I can see a topping or sideways to down on the large growth companies as they are now reasonably priced. If the market continues to do well, I would expect the Midcaps to start to outperform. But there is a caveat. There are trend-line right below the markets, and if they are broken and close below those areas, then the markets could start a correction again. Trend-lines are essential to hold. If they don’t hold, then there could be a setback to support the levels stated above. I still like the USA market better than the international one.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative
5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408



SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.

Charts provided by AIQ Systems:

Technical Analysis is based on a study of historical price movements and past trend patterns. There is no assurance that these market changes or trends can or will be duplicated shortly. It logically follows that historical precedent does not guarantee future results. Conclusions expressed in the Technical Analysis section are personal opinions: and may not be construed as recommendations to buy or sell anything.

Disclaimer: The views expressed are not necessarily the view of Sage Point Financial, Inc. and should not be interpreted directly or indirectly as an offer to buy or sell any securities mentioned herein. Securities and Advisory services offered through Sage Point Financial Inc., Member FINRA/SIPC, and an SEC-registered investment advisor.

Past performance cannot guarantee future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented in this letter should only be relied upon when coordinated with individual professional advice. *There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.
It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.
The price of commodities is subject to substantial price fluctuations of short periods and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated, and concentrated investing may lead to Sector investing may involve a greater degree of risk than investments with broader diversification.
Indexes cannot be invested indirectly, are unmanaged, and do not incur management fees, costs, and expenses.

Dow Jones Industrial Average: A weighted price average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
S&P 500: The S&P 500 is an unmanaged indexed comprised of 500 widely held securities considered to be representative of the stock market in general.

NASDAQ: the NASDAQ Composite Index is an unmanaged, market-weighted index of all over the counter common stocks traded on the National Association of Securities Dealers Automated Quotation System
(IWM) I Shares Russell 2000 ETF: Which tracks the Russell 2000 index: which measures the performance of the small capitalization sector of the U.S. equity market.

A Moderate Mutual Fund risk mutual has approximately 50-70% of its portfolio in different equities, from growth, income stocks, international and emerging markets stocks to 30-50% of its portfolio in different categories of bonds and cash. It seeks capital appreciation with a low to moderate level of current income.

The Merrill Lynch High Yield Master Index: A broad-based measure of the performance of non-investment grade US Bonds

MSCI EAFE: the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia, and Far East Index) is a widely recognized benchmark of non-US markets. It is an unmanaged index composed of a sample of companies’ representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends.
Investment grade bond index: The S&P 500 Investment-grade corporate bond index, a sub-index of the S&P 500 Bond Index, seeks to measure the performance of the US corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Bond index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap US equities.

Floating Rate Bond Index is a rule-based, market-value weighted index engineered to measure the performance and characteristics of floating-rate coupon U.S. Treasuries, which have a maturity greater than 12 months.

Money Flow; The Money Flow Index (MFI) is a momentum indicator that measures the flow of money into and out of a security over a specified period. It is related to the Relative Strength Index (RSI) but incorporates volume, whereas the RSI only considers SK-SD Stochastics. When an oversold stochastic moves up through its MA, a buy signal is produced. Furthermore, Lane recommends that the stochastic line be smoothed twice with three-period simple moving averages: SK is the three-period simple moving average of K, and SD is the three-period simple moving average of SK

Rising Wedge; A rising wedge is a technical indicator, suggesting a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex

Financials – Danger or Opportunity? Or Both?

To say that there is has been and remains a great deal of angst in the financial markets is a bit of an understatement. This is especially true when it comes to the financial sector.  The financial sector has a fairly high correlation to treasury yields (ticker FSRBX – Fidelity Select Banking Portfolio has a 0.52 correlation to ticker TNX – which tracks 10-year treasury yields).  As yields have plummeted so has the financial sector.  During the recent decline, FSRBX plunged -51% from its December 2019 peak.  With little expectation of higher rates anytime soon a lot of investors are understandably wary of diving into this sector.

But much like with the energy sector, the old adage that the time to buy is when there is “blood in the streets”, should give one pause before they turn their back completely on the financial sector.  For the time being I am keeping my eye on a little-known indicator called “Vixfixaverageave” (yes, I agree it is a really bad name).  The calculations for this indicator appear at the end of this article.  The reason I am watching it right now is that it recently reached a very oversold level that has helped to highlight some useful buying opportunities for financials in the past.

Ticker FSRBX

Figure 1 displays a monthly chart for FSRBX in the top clip and the Vixfixaverageave indicator in the bottom clip.  Note that the indicator rose above 72 at the end of April 2020.  As you can see there have been four previous occasions when this indicator, a) exceeded 72 and then b) reversed lower for one month.  For arguments sake we will call that a buy signal.

Figure 1 – Ticker FSRBX with indicator Vixfixaverageave (Courtesy AIQ TradingExpert)

Figure 2 displays the 1 to 5 year % + (-) for FSRBX following the four previous signals.  As you can see, they all proved to be exceptional buying opportunities.

Figure 2 – FSRBX returns 1 to 5 years after signal

Now for the disappointing news: if you are thinking that all we have to do is wait for this indicator to finally top out and that big profits are “guaranteed” to roll in, you are making a mistake.  As they say, “past performance is no guarantee of future results.”  (Sorry, I don’t make the rules).  So, when the Vixfixaverageave monthly reading for FSRBX does finally roll over, the proper course of action would be to:

*Decide if you really want to act based on the signal

*Decide how much capital you are willing to commit

*Decide how much of that capital you are actually willing to risk – i.e. will you stop out if a loss exceeds x%, or do you plan to simply hold it for 1 to 5 years regardless?

Summary

There are a million and one ways to trigger an entry signal.  The one discussed herein is just one more.  What really separates the winners from the losers is the answers to the three questions just posed.

Vixfixaverageave Calculations 

EDITTORS NOTE: The code sections can be copied and pasted into AIQ EDS or you can download the indicator code in an EDS file from here and save it to your /wintes32/EDS Strategies folder.

This indicator is based on another indicator called VixFix which was developed many years ago by Larry Williams.

hivalclose is hival([close],22).  <<<<<The high closing price in that last 22 periods

vixfix is (((hivalclose-[low])/hivalclose)*100)+50. <<<(highest closing price in last 22 periods minus current period low) divided by highest closing price in last 22 periods (then multiplied by 100 and 50 added to arrive at vixfix value)

vixfixaverage is Expavg(vixfix,3). <<< 3-period exponential average of vixfix

vixfixaverageave is Expavg(vixfixaverage,7). <<<7-period exponential average of vixfixaverage

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented represents the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

The Bartometer

April 7, 2020

Hello Everyone,

The 2020 COVID-19 Virus has adversely affected the entire world, and this will go down as one of the most volatile years in the stock and bond market in generations and even more volatile than the 2008 Bear Market.

CURRENT MARKET CONDITIONS:

This reason is that the declines came over eight days and not like the 2007-2009 decline which took a year and one half. The great recession of 2008 was a humanmade financial problem and this is a virus where very few are working. In the Recession of 2008, people were at least going to work and going out and spending money to support the economy. Now we are all destined to stay in the house unless we have an essential business. But the U.S. Government is doing everything it can to give grants and forgivable loans so that the economy doesn’t totally crash. That is better than in 2008. It is still serial to be confined to your house or go for a walk.

When we get our statement of our investments from our 401(k) s or from these accounts, you will see pretty large drops in values in the investment account and you will wonder if this is all worth it to stay in it or are we all destined just to make 1-3% in a savings account or a 3% fixed annuity with me. Right now getting 3% with no fees looks pretty good.

If you believe that good stocks and funds from successful growing businesses do well over the long term and this sell-off in the markets are BUYING opportunities over the next few months you may want to dollar cost average into the markets. If you believe that this COVID-19 virus will soon be over within months and that 1 to 3 years from now the markets will be higher than they are now is it worth holding on OR Buying more when markets are lower? The question is if you are buying or investing for the next 1-20 years. Do you like suitable stock and bond investments that are cheap now or more expensive? If your answer is yes, than you may want to average into the markets over the next few months as it is down during this pandemic.

MARKET RECAP:

On my last 3 Bartometers I was getting and got Very Cautious about the stock and bond markets, but did I expect this? Not really. I said if the NASDAQ broke 9200, I will get very Cautious but a 25 to 35% decline I did not expect. The markets had rallied 20%+ from the low hit a couple of weeks ago but still, the markets are down 17-20% into 2020. Are we in a recession now? I’d say yes, but it is forced because of COVID-19, but it will be one just because of the number of people laid off.

In the following pages are discussions of the long term of the markets, what do in a Bear market and my technicals of the markets going forward. But above I would like to say that even though American Capitalism is under fire, and also though the market got hurt as well as our portfolios, we will rise to the COVID-19 challenge like any other war or attack on the United States of America going back to the Revolutionary War to WW1, WW2, and all the other wars we had in our history. This country and its citizens will find a vaccine to this virus and I believe in my heart that 1 to 2 years from now this market should be nicely higher. Dollar-cost averaging currently buying a lower priced shares of good companies should, with no guarantees expressed or implied, be a good deal higher over the next few years. What do you think? Have we gone down this much over the last 50 years? Yes, many times. Has it recovered each time? Yes. Because capitalism works and good companies over the long term make money.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until April 7, 2020. These are passive indexes.
*Dow Jones -20%
S&P 500 -17%
NASDAQ Aggressive growth -9%
I Shares Russell 2000 ETF (IWM) Small cap -31%
Midcap stock funds -29%
International Index (MSCI – EAFE ex USA -22%
Investment Grade Bond -4%
High Yield Bond -13%
Government bond +4%
The average Moderate Fund is down -16% this year fully invested as a 65% in stocks and 35% in bonds and nothing in the money market.

WANT TO SHOW YOU THE YEAR BY YEAR RETURNS OF THE S&P 500 TOTAL RETURNS BY YEAR

WHAT HAPPENED TO THE MARKETS DURING THE PANDEMIC AND SPANISH FLU IN 1917-1918:

The stock market today is looking a lot like it did a century ago, and if Great Hill Capital’s Thomas Hayes’s interpretation of the trendlines is on point, the bottom could be approaching.

“Just as the market started discounting the worst-case scenario in 1917,” he wrote, “it was already discounting a recovery months before the worst-case scenario occurred in 1918.”

What was going on in 1917? The Spanish Flu was just starting to bubble up, with the deadliest month of the whole pandemic not hitting until October 1918 — by then, as you can see from this chart, the Dow Jones Industrial Average DJIA, -1.68% had already begun to heal.


Hayes then posted this chart of the modern-day market plunge, noting that the nasty drawdowns amid the early stages of both pandemics were virtually the same.

More than 51 million people died globally in the Spanish Flu Pandemic, and the market rebounded more than 80% in the following two years from its bottom to top. This is no guarantee the market will rally that much or at all, but the USA is now better equipped to handle a massive Pandemic then in 1918 to 1919. Also, many companies are internet companies that could do well as people shop and do business over the internet; in addition, it is much more diversified and global than it was in 1918. For these reasons and more, I believe that the long term is more promising now for a recovery over the next 1 to 2 years.

There is one caveat; the Commodity index is right near its low of 2009, where it found it at a 29-year support level. If that breaks through that level, then we can go into a deeper recession for a more extended period.
The market rebound depends on how quickly the government fixes this problem and people go back to work. I am optimistic over the next two years; but understand a recession should happen at least for a few quarters. I think the Recession should be relatively short term.

Since this graph was made a week ago, look at the next page and it is up to date. COMPARE the next graph to the Pandemic of 1918 and it is starting to look more like it. There is no guarantee expressed or implied, but look at the Pandemic and then the updated Dow on the next page.

The Dow Jones is above. This is the Daily Chart. As you can see, the decline of the Dow Jones Average was relatively very quick. Current is sitting at 22653 right BELOW THE 50% Fibonacci retracement level. A normal BEAR market usually tops on a countertrend rally right at a 50% or 61.8% Fibonacci level and declines or puts in a short top. So if this is true in this case there could be resistance at 23,901 or 25,236 area. There is also some resistance at the 200 day moving average at 26,660 and sloping downward. My AIQ models gave a BUY on 3/24/2020, but only a short term Buy not a longer term Weekly Buy. So even though the market is somewhat short term Bullish, there could be a short term top at 23,901, 25,236 or the 26,660 areas.

Momentum is good but can change quickly on the downside after earnings come out that will be bad. A buy signal is giving when the lavender line crosses blue line and Sell signal when it does it on the downside

One thing I don’t like is the On Balance Volume Line. Notice as the market is going up it is going up on low relative volume. This is somewhat negative. Over all I think the market should be higher when this is all done and when there is a vaccine and people go on living their normal lives it should be better. This market will be volatile. The market may continue on the upside but over the short term I think the rally is limited to the levels I said above on the Fibonacci levels and the 200 day moving average. In addition, the market may not like the earnings numbers over the next couple of weeks and the market could drop again towards 20000 or below again.

Key investor Points to remember in a Bear Market:

  • Stay calm and keep a long-term perspective.
  • Maintain a balanced and broadly diversified portfolio.
  • Balance equity portfolios with a mix of dividend-paying companies and growth stocks.
  • Choose funds with a strong history of weathering market declines.
  • Use high-quality bonds to help offset equity volatility.
  • Advisors can help investors navigate periods of market volatility

THE BOTTOM LINE:

The market has had its worst decline in 10 years. It has recovered about 35% of the loss over the last week. It is not a time to sell during this decline in my opinion but for some of you it would a great time to start to nibble in your mutual funds on setbacks because the COV19 virus should be controlled over the next year and if you look at all of the virus pandemics we have had, it has been a good time to Buy if your goals are longer term. It is not a time to throw caution to the wind but call me to make selective dollar-cost average buys. In addition, when EARNINGS come out in the next 2 weeks the stock market could go back down again. Remember you buy when there is blood in the streets. Bonds should be more in the investment-grade or short- term investment grade side. If you are a long-term investor and have 20 years+ towards retirement use sell-offs to add through dollar-cost averaging. Diversification is essential but portfolios should be somewhat safer.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative
5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408



SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.

Charts provided by AIQ Systems:

Technical Analysis is based on a study of historical price movements and past trend patterns. There is no assurance that these market changes or trends can or will be duplicated shortly. It logically follows that historical precedent does not guarantee future results. Conclusions expressed in the Technical Analysis section are personal opinions: and may not be construed as recommendations to buy or sell anything.

Disclaimer: The views expressed are not necessarily the view of Sage Point Financial, Inc. and should not be interpreted directly or indirectly as an offer to buy or sell any securities mentioned herein. Securities and Advisory services offered through Sage Point Financial Inc., Member FINRA/SIPC, and an SEC-registered investment advisor.

Past performance cannot guarantee future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented in this letter should only be relied upon when coordinated with individual professional advice. *There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.
It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.
The price of commodities is subject to substantial price fluctuations of short periods and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated, and concentrated investing may lead to Sector investing may involve a greater degree of risk than investments with broader diversification.
Indexes cannot be invested indirectly, are unmanaged, and do not incur management fees, costs, and expenses.

Dow Jones Industrial Average: A weighted price average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
S&P 500: The S&P 500 is an unmanaged indexed comprised of 500 widely held securities considered to be representative of the stock market in general.

NASDAQ: the NASDAQ Composite Index is an unmanaged, market-weighted index of all over the counter common stocks traded on the National Association of Securities Dealers Automated Quotation System
(IWM) I Shares Russell 2000 ETF: Which tracks the Russell 2000 index: which measures the performance of the small capitalization sector of the U.S. equity market.

A Moderate Mutual Fund risk mutual has approximately 50-70% of its portfolio in different equities, from growth, income stocks, international and emerging markets stocks to 30-50% of its portfolio in different categories of bonds and cash. It seeks capital appreciation with a low to moderate level of current income.

The Merrill Lynch High Yield Master Index: A broad-based measure of the performance of non-investment grade US Bonds

MSCI EAFE: the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia, and Far East Index) is a widely recognized benchmark of non-US markets. It is an unmanaged index composed of a sample of companies’ representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends.
Investment grade bond index: The S&P 500 Investment-grade corporate bond index, a sub-index of the S&P 500 Bond Index, seeks to measure the performance of the US corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Bond index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap US equities.

Floating Rate Bond Index is a rule-based, market-value weighted index engineered to measure the performance and characteristics of floating-rate coupon U.S. Treasuries, which have a maturity greater than 12 months.

Money Flow; The Money Flow Index (MFI) is a momentum indicator that measures the flow of money into and out of a security over a specified period. It is related to the Relative Strength Index (RSI) but incorporates volume, whereas the RSI only considers SK-SD Stochastics. When an oversold stochastic moves up through its MA, a buy signal is produced. Furthermore, Lane recommends that the stochastic line be smoothed twice with three-period simple moving averages: SK is the three-period simple moving average of K, and SD is the three-period simple moving average of SK

Rising Wedge; A rising wedge is a technical indicator, suggesting a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex

The Ultimate Ugly Contrarian Play

They always say you should buy when there is “blood in the street.”  They also say, “buy them when nobody wants them.”  So, let’s consider today what could be the most unloved, bombed out, everybody hates it “thing” in the world – coal.

Ugh, just the mention of the word coal elicits a recoiling response.  “Dirty energy!”  “Climate change inducing filth!” “Ban coal!”.  And so and so forth.  And maybe they have a point.  But “they” also say “facts are stubborn things” (OK, for the record, I think it’s a different “they” who says that but never mind about that right now).

So here is a stubborn fact: coal supplies about a quarter of the world’s primary energy and two-fifths of its electricity.  As I write, two of the fastest growing economies (at least they were as of a few months ago) – China and India – are not only heavily reliant upon coal for energy, but are still building more and more coal-fired plants.  Now I am making no comment on whether this is a good thing or a bad thing but the point is, it most definitely is a “thing.”

So however one feels about coal, the reality is that it is not going to go away anytime soon.  Does this mean it will “soar in value” anytime soon – or even ever for that matter?  Not necessarily.  But as an unloved commodity it’s sure is hard to beat coal.  And as “they” (they sure are a bunch of know it all’s they?) say, “opportunity is where you find it.” 

Ticker KOL is an ETF that invests in coal industry related companies.  And what a dog it has been.  Figure 1 displays a monthly chart of price action.  Since peaking in June 2008 at $60.80 a share, it now stands at a measly $6.29 a share, a cool -89.6% below its peak.  And like a lot of things it has been in a freefall of late.

Figure 1 – Ticker KOL Monthly chart (Courtesy AIQ TradingExpert)

So, is this a great time to buy KOL?  That’s not for me to say.  But for argument’s sake, Figure 2 displays a weekly chart of KOL with an indicator I call Vixfixaverageave (I know, I know), which is a version of an indicator developed a number of years ago by Larry Williams (Indicator code is at the end of the article).

Figure 2 – KOL weekly chart with Vixfixaverageave indicator (Courtesy AIQ TradingExpert)

Note that Vixfixaverageave is presently above 90 on the weekly chart.  This level has been reached twice before – once in 2008 and once in 2016.  Following these two previous instances, once the indicator actually peaked and ticked lower for one week, KOL enjoyed some pretty spectacular moves. 

To wit:

*Following the 12/19/08 Vixfixaverageave peak and reversal KOL advanced +252% over the next 27.5 months

*Following the 2/19/16 Vixfixaverageave peak and reversal KOL advanced +182% over the next 23.5 months

When will Vixfixaverageave peak and reverse on the weekly KOL chart?  There is no way to know.  One must just wait for it to happen.  And will it be time to buy KOL when this happens?  Again, that is not for me to say.  None of this is meant to imply that the bottom for KOL is an hand nor that a massive rally is imminent.

Still, if there is anything at all to contrarian investing, its hard to envision anything more contrarian that KOL.

Vixfixaverageave Calculations

hivalclose is hival([close],22).  <<<<<The high closing price in that last 22 periods

vixfix is (((hivalclose-[low])/hivalclose)*100)+50. <<<(highest closing price in last 22 periods minus current period low) divided by highest closing price in last 22 periods (then multiplied by 100 and 50 added to arrive at vixfix value)

vixfixaverage is Expavg(vixfix,3). <<< 3-period exponential average of vixfix

vixfixaverageave is Expavg(vixfixaverage,7). <<<7-period exponential average of vixfixaverage

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented does not represent the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

Thoughts on the Energy Sector (just in case we ever leave our homes again)

In a few recent articles (for example here) I suggested that one day we would look back on this period as a terrific buying opportunity for energy related issues.  At the same time, I still have yet to become comfortable “pulling the trigger”.  Thank goodness for small favors.

Anyway, the overall sentiment still holds.  Energy is dirt cheap as are shares of most energy related stocks/ETFs etc.  Again, that doesn’t necessarily mean that now is the exact moment to “load up”.  To say that there is a wee bit of uncertainty regarding the future would be about the greatest understatement one could presently make.  Still, it is important to plan ahead and to be prepared when the time comes.  So, what follows should be considered “food for thought” and not “an immediate call to action.”

A Few Things Energy

Ticker TAN

According to conventional wisdom, the future is “green”.  I’ll be candid – I am all for green energy, as long as when I flip the switch the lights come on AND when I look at my energy bill I don’t faint.  So, let’s start with a “green” play.

Turth be told, ticker TAN (Invesco Solar Energy ETF) has never been much of a performer.  Still, its in the solar business which people keep telling me is “the future.”  In reality the primary thing it has going for it is that it hasn’t completely cratered to the same degree as just about every other stock in the energy sector.  As you can see in Figure 1, TAN actually bottomed out at $12.60 in 2012 and – despite a near 50% decline during the recent panic – is presently trading around $26 a share.  Not necessarily a screaming buy signal, but a nice relative performance as we will see in a moment.

Figure 1 – Ticker TAN (Courtesy AIQ TradingExpert)

Ticker UGA

In a sure “Sign of the Times”, the Good News is that gasoline prices are at their lowest levels in year, while the Bad News is that we don’t have anywhere to drive to except the grocery store.  Figure 2 displays the chart for ticker UGA – the United States Gasoline Fund, and ETF that tracks the price of gasoline.

While attempting to “pick a bottom” is a fool’s errand, the primary point is that it is not that hard to envision the price of this ETF being significantly higher at some point in the years ahead.  Whether an investor has the fortitude to weather whatever the short-term uncertainty and the patience to see how the long-term plays out are the primary issues associated with contemplating this ticker at the moment.

Figure 2 – Ticker UGA (Courtesy AIQ TradingExpert)

Ticker XLE

Ticker XLE is a play on the broad (mostly fossil fuel related) energy sector.  As you can see in Figure 3, XLE has plunged to price levels not since 2004. In addition, it presently yields roughly 8.8%.  That being said, an investor has to realistically expect that dividend payments in the hard-hit energy sector will see some significant cuts as things play out in the months ahead. 

With an oil price war in full swing, not to mention a sharp decline in demand for the foreseeable future due to the coronavirus pandemic, the fundamentals for this sector are unlikely to improve soon.  Nevertheless, the reality is that – at least for the time being – the world runs on crude oil.  As a result, the current price range may one day be looked back upon as a once-in-a-generation buying opportunity.

Figure 3 – XLE (Courtesy ProfitSource by HUBB)

Ticker PAGP

OK, let’s throw in one obscure, totally speculative – yet fundamentally intriguing – thought for consideration.  Ticker PAGP (Plains GP Holdings, L.P.).  Here is what they do (straight from their website):

“Plains engages in the transportation, storage, terminalling, and marketing of crude oil and refined products, as well as in the storage of natural gas, and the processing, transportation, fractionation, storage, and marketing of natural gas liquids.

Assets include:

*17,965 miles of active crude oil and NGL pipelines and gathering systems (emphasis mine as these things will continue to function as long as crude and NG need to be moved – which they do)

*50 barges and 20 transport tugs

*109 million barrels of storage capacity

*1,600+ trucks and trailers

*9,100 rail cars”

The bottom line is that as long as crude oil and natural gas needs to be moved, PAGP has a niche in which to operate.  For the record, at $6.35 a share the stock’s present dividend comes to a yield of 22.7%.  Certainly, the prospect of a significant dividend cut is a Signiant risk associated with this stock.  But for the moment anyway the price is near an all-time low and the dividend yield is attractive.

Figure 4 – Ticker PAGP (Courtesy ProfitSource by HUBB)

Summary

As allows, DO NOT look upon what I have written as “recommendations.”  Particularly in the current environment.  They are simply “food for thought.”

Given current fundamentals:

*An ongoing oil price war (making drilling and refining unprofitable for many companies)

*An economy on shutdown (which cripples demand)

*An existential struggle between “green” energy and “traditional” fossil fuel-based sources (which creates uncertainty about future expectations)

All combine to make the energy sector a giant question mark at the present time.  But if the old adage that the time to buy is when there is “blood in the streets”, than investors might be well served in the long run to start thinking now about how much capital they might be willing to commit to energy, and what type of catalyst might prompt them to actually “take the plunge.”

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented does not represent the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

A couple of comments on current markets

3-26-20 saw the market on the third day of a rebound from the low of 18213 on 3-23-20. The chart below shows the Fibonacci retracements from the recent high to this low.

The retracement hit the 38.2% level and this level can offer resistance. The market is down again and could be we are headed down to retest at or near the last low.

If we rally passes the 38.2% the next resistance level will be at 23775 or so at the 50% retracement level.

AIQ Market Timing signals

The AIQ Market Timing system issued a 99-1 up signal on 3-10-20, the chart below shows the signal. The Phase indicator changing direction in the direction of the signal (moving down then moves up) provides confirmation market Timing signals. IN this case that didn’t happen.

Another up signal 99-1 fired on 3-24-20 and this time the phase turned up the same day and confirmed the signal.

Here are 3 of the bullish rules that fired to create this high up signal

  • The 21 day stochastic has advanced and crossed the 20% line and the price phase indicator is also increasing.  In this weakly downtrending market this is taken as a strong bullish signal suggesting an increase in prices.
  • Volume accumulation percentage is increasing and the 21 day stochastic has moved above the 20% line. In this downtrending market, this is taken as a   strong bullish signal that could be followed by an  upward price movement.
  • The price phase indicator is negative but volume accumulation has started to advance.  This is a  non-conformation that, regardless of the type of market, is a bullish signal which usually results in an upward movement of the market.

The counter trend AI system that generates these signals can be early in their firing. 

HiLo Indicator Nears an Important Point

The old adage is that we should “buy when there is blood in the streets.”  It basically means to buy when things look their worst.  Well, for the record I am not actually a fan of this intonation. While it is probably a fair statement, I for one prefer to see some sign of hope – some sign of a trend reversal at the very least – before taking the plunge. 

One historically useful indicator suggests we may be nearing that point. 

I refer to this indicator as JKHiLo.  I included my initials in the acronym because I “developed” it.  OK, all I really did was take one guy’s useful indicator and multiply it by another guy’s useful indicator and voila. 

In a nutshell JKHilo multiplies Norman Fosback’s HiLo Logic Index by Gerald Appel’s High/Low Indicator.

The Fosback HiLo Logic Index (FHLLI)

I wrote two articles here and here about this indicator.  In short, a very low number of stocks making new lows is bullish for the stock market – it indicates that stocks overall are going up and is bullish.  At the same time, a very low number of stocks making new highs is also (typically) ultimately bullish going forward, as it tends to signal a “washed out” market. 

So this indicator:

*takes the lower of new highs and new lows each day

*divides that number by the total number of issues trades

*takes a 10-day moving average of daily readings

Specifically, the Fosback HiLo Logic Index (HLLI) is calculated as follows:

A=Daily Nasdaq New Highs

B=Daily Nasdaq New Lows

C=The lower of A and B

D=The total number of Nasdaq issues traded

E = (C / D) * 100

FHLLI = 10-day average of E

Readings above 2.15% are considered a sign of “churning”, i.e., a lot of new highs AND new lows.  Reading below 0.40% are considered “bullish” because either new highs OR new lows is very low.

The Fosback HiLo Logic Index finally dropped below 0.40% on 3/23/20.  Figure 1 displays the OTC Composite Index with this indicator through 12/31/2019.

Figure 1 – Fosback HiLo Logic Index

The Appel High/Low Indicator

This indicator (heretofore AHLI) is more of a trend-following indicator.  It simply divides the number of new highs each day by the total of new highs AND new lows, then takes a 10-day average.

The AHLI is calculated as follows:

A=Daily Nasdaq New Highs

B=Daily Nasdaq New Lows

C = A / (A+B)

AHLI = 10-day average of C

Figure 2 displays this indicator versus the OTC Composite from 12/29/17 through 3/23/20.

Figure 2 – Appel High/Low Indicator (x100; blue line) with OTC Composite (/100; red line); Dec17 through 3/23/20

Extremely low readings tend to highlight oversold market conditions.  For the record, an actual “buy signal” for this indicator occurs when it drops below 0.20 (or 20 in Figure 3 since the blue line is the indicator x 100) and then rises back above that level.

The JK Hilo Index (JKHiLo)

So then one day some young punk comes along and multiplies the Fosback indicator by the Appel indicator and has the audacity to add his own initials.  Some people. Anyway:

JKHiLo = (FHLLI x AHLI) x 500

A “12-month Buy Signal” occurs when this indicator:

*drops below 5.00

*then turns higher for one day

The first part of this signal has happened.  As of the close on 3/23/20 JKHL has plunged to 1.8. 

Let’s look at previous instances when JKHL fell below 5.00 and then ticked higher for one day.

IMPORTANT: This upside reversal technically constitutes a “12-month buy signal”.  What does that mean?  It means:

*We expect the market to be higher 12-months later

*HOWEVER, it is NOT an “All Clear, Everything is Great, You Can’t Lose” signal

The bottom line is that it typically does NOT mark the actually bottom.  In most cases, another new low or at least a retest of the low follows within a few months.  But not always.

Figure 3 displays the 7 buy signals that have occurred since 1990.

A = Date of signal – i.e., date the JKHL indicator ticked up one day after dropping below 5

B = SPX closing price on date of signal

C = Subsequent low closing price for SPX

D = SPX closing price 12 months after signal date

E = # of trading days between date of signal and ultimate low

F = % decline by SPX from date of signal to ultimate low

G = % change in SPX closing price 1 year after date of signal

Figure 3 – JKHL 12-month buy signals

It is important to note that each previous “buy signal” was followed by further downside price movement prior to the ultimate low.  It ranged from 2 trading days in 2018 to 101 trading days in 2008.  6 of the 7 signals saw a further decline of no more than -6.3%.  But the 2008 signal saw the market continue to plunge another -31% of the following 3+ months.

So, like I said earlier, even when this indicator does turn up and generate a new signal, that DOES NOT mean “All Clear”.  Still, to get an idea of what we might expect, each of the previous signals are displayed in the Figures below.

Figure 4 – 1990 signal (-3.4% to low, +25.6% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 5 – 1998 signal (-6.3% to low, +31.3% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 6 – 2002 signal (-4.1% to low, +24.3% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 7 – 2008 signal (-31.3% to low, +10.7% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 8 – 2011 signal (-0.5% to low, +25.4% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 9 – 2016 signal (-4.1% to low, +19.1% 12 months later)
(Courtesy AIQ TradingExpert)

Figure 10 – 2018 signal (-2.4% to low, +28.9% 12 months later)
(Courtesy AIQ TradingExpert)

We DO NOT have a new signal yet, but JKHiLo is below 5, so it is just a matter of waiting for the daily value to tick higher for one day (and then – if history is a guide – waiting for the ultimate low to be put in before a subsequent rally).

Figure 11 – As of 3/23/20 (Courtesy AIQ TradingExpert)

Summary

Are we on the cusp of a new opportunity?  Or on the edge of a cliff?  In this time of unprecedented uncertainty, I can’t pretend to know the answer.  So, I rely on objective indicators to guide me.

At this moment in time the “trend-following” indicators are bearish and so caution is undoubtedly in order.  But other indicators such as the one discussed here remind us to remain alert to new opportunities.

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented does not represent the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

Houston, We Have a Parabola

Everybody likes it when an asset that they hold goes up in price.  In fact, the more the better.  But only to a point as it turns out.  When price gets carried away to the upside – we trader types typically refer to it as a “going parabolic”, i.e., a situation when prices are essentially rising straight up – it almost invariably ends very badly.  We have seen a couple of examples recently.

Palladium

Palladium is a metal that according to Bloomberg’s “About 85% of palladium ends up in the exhaust systems in cars, where it helps turn toxic pollutants into less-harmful carbon dioxide and water vapor. It is also used in electronics, dentistry, medicine, hydrogen purification, chemical applications, groundwater treatment, and jewelry. Palladium is a key component of fuel cells, which react hydrogen with oxygen to produce electricity, heat, and water.”

And it was pretty hot stuff for some time.  At least until it wasn’t.  As a proxy we will look at the ETF ticker symbol PALL, which attempts to track the price of palladium. 

*From January 2016 into January 2018, PALL rose +139%

*In the next 7 months it declined by -26%

*And then the fun really began – Between August 2018 and February 2020 PALL rose +245%, with a +110% gain occurring in the final 5+ months of the advance

What a time it was.  Until it wasn’t anymore.

Since peaking at $273.16 a share on 2/27/2020, PALL plunged -50% in just 12 trading days.  To put it another way, it gave back an entire year’s worth of gains in just 12 trading days.

Was there any way to see this coming?  Maybe. In Figure 1 we see a monthly chart with an indicator called “RSI32” in the bottom clip.  This indicator is derived by taking the 2-month average of the standard 3-month Relative Strength Index (RSI). 

Figure 1 – PALL with RSI32 (Courtesy AIQ TradingExpert)

Notice that historically when the RSI32 indicator gets above 96, trouble tends to follow pretty quickly.  See Figure 2

Figure 2 – PALL: Peaks in RSI32 and the subsequent maximum drawdown (Courtesy AIQ TradingExpert)

T-Bonds

During the panic sell-off in the stock market in recent weeks, treasury bonds became very popular as a “safe haven” as investors piled out of stocks and into the “safety” of U.S. Treasuries.  What too many investors appeared to forget in their haste was that long-term treasury can be extremely volatile (for the record, short and intermediate term treasuries are much less volatile than long-term bonds and are much better suited to act as a safe haven).  Likewise – just an opinion – buying a 30-year bond paying 1% per year is not entirely unlike buying a stock index fund when the market P/E Ratio is over 30 – there just isn’t a lot of underlying value there. So you are essentially betting on a continuation of the current trend and NOT on the ultimate realization of the underlying value – because there really isn’t any.

Anyway, Figure 3 displays a monthly chart of ticker TLT – an ETF that tracks the long-term treasury – with the RSI32 indicator in the bottom clip. 

Figure 3 – TLT with RSI32 (Courtesy AIQ TradingExpert)

Bond price movement is typically not as extreme and volatile as Palladium, so for bonds a RSI32 reading above 80 typically indicates that potential trouble may lie ahead. 

As of the close of 3/17/20, TLT was almost -15% off of its high in just 6 trading days. We’ll see where it goes from here.

Tesla (Ticker TSLA)

Anytime you see what is essentially a manufacturing company – no matter how “hot”, “hip”, or “cool” the product they build – go up 200% in 2 months’ time, the proper response is NOT giddy delight.  The proper response is:

*If you DO own the stock, either set a trailing stop or take some profits immediately and set a trailing stop for the rest

*If you DO NOT own the stock, DO NOT allow yourself to get sucked in

Take TSLA in Figure 4 for instance. By February 2020 TSLA was up almost 200% in 2 months and almost 450% in 8 months.  The RSI32 indicator was above 96 – a stark warning sign. 

19 trading days after making its closing high, TSLA is down -59%.

Figure 4 – TSLA with RSI32 (Courtesy AIQ TradingExpert)

Summary

Simply remember this.  Parabolic price moves are:

*Exciting while they are unfolding

*Disastrous when they end

Typically, the security in question gives back months – or in some case, years – worth of gains in a shockingly short period of time.

Beware the parabola.

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented does not represent the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

Bartometer March 8, 2020

Hello Everyone,

Over the last month the stock market has had one of its worst declines over the shortest periods of time in history. Not even did the 2008 declines beat the velocity of the declines we saw over the last month. In 2 days the NASDAQ fell over almost 11% because of the rightfully so, Corona Virus and its potential to not only kill people but mainly do disrupt the business process of selling and the supply lines to get product. Two things I do want to say is

1. You don’t base your long term financial goals based on a short term flu. 5 years from now this will be just another flu we had. People will have forgotten about it.

2. Over the last two months I have be saying to take profits as we were overvalued, I was getting Cautious with the Rising Wedge pattern and thought the S&P 500 would go to the 3280-3380 and top out. The S&P 500 topped at 3386 and fell through the trend lines to the 2900 area, down 13% from the 3380 level. As of this point I am still very Cautious, but looking for a bottom soon over the next 2 months.

This is why I do technical analysis. People can say that the Corona Virus did it, and it did contribute, but the market was positioning itself for a fall. I think the market will continue to be volatile and potentially fall more. With the outbreak just beginning the USA, the S&P should test the 2855 level it hit a week ago and either bounce from there but I feel it will probably break down below that and hit the 2600 to the 2750 level. There have only been less than 500 people who have gotten the tests. Once the US government opens the tests up to many more people there should be many many more people who have the virus. This will scare people to stop going out at restaurants, coffee shops, theatres, cruise ships, travel and more. It will take out a percentage out of the Gross Domestic Product, (GDP). It will probably cause the markets to fall another 5 to 10%+, but it will not kill Capitalism. It should only be a short term. Remember, if this is a flu where less than 1% of the people who contract it dies, then who are dying? The elderly and the sick who have immune problems. So protect yourself. Get the N95 masks on Amazon, get myricetin as a supplement people are recommending to build up your immune system. Talk to your doctor first. Call me to rearrange your portfolios with me and your 401(k). Remember too, this will pass, but I think we have more on the downside.

This is what’s happened over the last 20 years:

2000 Y2k is going to kill us all.

2001 Anthrax is going to kill us all.

2002 West Nile Virus is going to kill us all.

2003 SARS is going to kill us all.

2005 The Bird Flu is going to kill us all. 2008 The Great Recession is going to kill us all.

2010 BP Oil is going to kill us all.

2012 The Mayan Calendar is going to kill us all.

2013 North Korea is going to kill us all.

2014 Ebola is going to kill us all.

2015 Disney Measles and ISIS is going to kill us all.

2016 Zika virus is going to kill us all.

2020 Corona Virus is going to kill us all.

Now granted this is worse because it is a pandemic and it is worse than most of the others, not in life as we lose 30-60 thousand every year to the regular flu, but there is no vaccine yet, and it is creating FEAR. But mostly the FEAR is stopping people from spending money, this will cause the markets to fall. So FEAR is killing you. Protect yourself. Be smart. Use FEAR in the markets as an advantage. Over the last few months, go to the old Bartometers, I have been saying to take profits, the markets are too overbought, that we had a Rising Wedge formation that is a reversal pattern and I thought we could go down. Well now that that has happened, is the market a BUY yet? No, because I feel it will go down more, but it may bottom over the next month or two.

There may be buying opportunities that only come once every 10 years or so. With no guarantees, if the market goes below the 2855 level down to the 2600 level to the 2750 level you may want to call me for potential buying opportunities. Remember what Warren Buffet says, “ Buy when there is BLOOD in the STREETS” That’s when most make money over the long term, When Florida houses were plummeting in the 2008 recession, were there great BUYS? In the great recession, did stocks go so low that if you bought in early 2009 did you get unbelievable deals on stocks and funds? Yes… You make money in the bull markets by buying in the BEAR MARKETS. I am not saying to buy now but get your GREED hats on. You all need to contact me to discuss strategy now. Remember, can we go down more? YES and probably will. Can we go into a Recession because of this situation? Maybe and most likely, economists are giving it a 50-50% chance. Should you reduce equities more, possibly depending on your situation and how close you are to retirement? Last month I said to take money off the table because the markets were too high. Now it’s more of a shift between funds and change some of the bonds as if Oil keeps falling, you don’t want to have much in the High Yield Bond sector or Floating rate bond area. I am concerned, however, about the corporations continue to buy back their own shares while they are issuing debt to do it. This buying back of stock is building the asset bubble. This is one concern I have in addition Corona Virus.

An excerpt from Fundamental Economist Dr. Robert Genetski: from Classical Principles.com:
Stock Market Volatile as the Virus Gains

Investors switched from euphoria to fear and back several times this past week. When the dust settled, the Nasdaq, Nasdaq 100 and S&P 500 rose 1%-3% while small cap stocks fell 1%-2%.

The reason I recommend caution is related to the expectation of a sharp increase in the virus in the US. The US conducted only 473 tests through March 1. The number of tests will increase dramatically in the period ahead. More testing means more confirmed cases. The latest figures for the US show 226 cases.

Outside the US infections are growing at a rate of 20% a day. The rate of increase has slowed in Korea, but has increased dramatically in Italy and throughout Europe.

There is some good news. The daily rate of increase in China has slowed to less than 0.2% for the four days ending March 5th. Flexport, a global freight logistics company, reports that 60% of China’s manufacturing capacity is now back on line. Since US companies depend on China for critical supplies and medicines, the threat of shortages should soon be less pressing.
There was more good news this past week as surveys of business activity show the US economy remained remarkably strong in February. While various international companies are suffering greatly, recent indications show the US is weathering the storm well, at least through February. Amid the uncertainty over the spread of the virus in the US, it continues to make sense to be cautious about owning stocks.

Returns in 2020 Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until March 7, 2020. These are passive indexes.

*Dow Jones -8.9%
S&P 500 -8.2%
NASDAQ Aggressive growth -4.4%
I Shares Russell 2000 ETF (IWM) Small cap -12.84%
Midcap stock funds -12.54%
International Index (MSCI – EAFE ex USA -10.4% Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration -4.70%
High Yield Merrill Lynch High Yield Index -3.7%

Floating Rate Bond Funds -2.4%
Short Term Bond +1.3%
Fixed Bond Yields (10 year) .76% Yield

The average Moderate Fund is down -4.70% this year fully invested as a 65% in stocks and 35% in bonds and nothing in the money market.

Interest rates look stable going forward over the next 6 months

The S&P 500 is above. I used a weekly chart as I think the S&P will fall below 2855 and possibly hit the following support levels for support.
2822, 2721-2747, 2600-2630, and 2340.

These are points that investors are looking at as a support levels. I think we have more to go on the downside. The Blue arrows are areas that listed to the left I think the S&P can go too.

The middle graph is the SK-SD stochastics. This shows a breakdown, Last month I said anything over the 88 level is overbought. It’s 21 to 48 on the Daily, now it’s getting OVERSOLD but can go down more.

The third graph is the Stochastics chart. Anything below 20 is showing the market is very oversold. But can still trend lower.

The Dow Jones is above. I drew the last three years and notice the that the 23576 is support right at the red line , but I believe the low will breakdown as it could test and breakdown and test its 200 week moving average at 23,587. If that doesn’t hold then the old lows of 21,734 are next.

This could be the capitulation investors are looking at to starting getting back into the markets. If this happens then there is a much greater chance that a Recession will occur. Please call me to Strategize your portfolio at 860-940-7020.

 Support levels on the S&P 500 area are 2822, 2721-2747, 2600-2630 and 2340. These might be accumulation areas if you are a Long term investor.
 Support levels on the NASDAQ are 7658 to 7715, 7303, and 6861.
 On the Dow Jones support is at 23,587 (200 week moving average), 21,734, 19,794 and 17,863
 These may be safer areas to get into the equity markets on support levels slowly.

THE BOTTOM LINE:
Now that the markets have broken down the trend line I explained last month. I am more Cautious on the markets. The Corona Flu will scare people and they will pull in their horns towards traveling, going out and this act alone can cause a Recession. The market is starting to become somewhat oversold but I still would no Buy here, but wait until the Corona Virus Fear is nearing the worst it could get. That could be over the next 2 months or so. I think the S&P 500 and the markets could continue to fall as energy is also going down.


Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative
Contact information:

5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408

SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.


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The price of commodities is subject to substantial price fluctuations of short periods and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated, and concentrated investing may lead to Sector investing may involve a greater degree of risk than investments with broader diversification.
Indexes cannot be invested indirectly, are unmanaged, and do not incur management fees, costs, and expenses.
Dow Jones Industrial Average: A weighted price average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
S&P 500: The S&P 500 is an unmanaged indexed comprised of 500 widely held securities considered to be representative of the stock market in general.
NASDAQ: the NASDAQ Composite Index is an unmanaged, market-weighted index of all over the counter common stocks traded on the National Association of Securities Dealers Automated Quotation System
(IWM) I Shares Russell 2000 ETF: Which tracks the Russell 2000 index: which measures the performance of the small capitalization sector of the U.S. equity market.
A Moderate Mutual Fund risk mutual has approximately 50-70% of its portfolio in different equities, from growth, income stocks, international and emerging markets stocks to 30-50% of its portfolio in different categories of bonds and cash. It seeks capital appreciation with a low to moderate level of current income.
The Merrill Lynch High Yield Master Index: A broad-based measure of the performance of non-investment grade US Bonds
MSCI EAFE: the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia, and Far East Index) is a widely recognized benchmark of non-US markets. It is an unmanaged index composed of a sample of companies’ representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends.
Investment grade bond index: The S&P 500 Investment-grade corporate bond index, a sub-index of the S&P 500 Bond Index, seeks to measure the performance of the US corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Bond index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap US equities.
Floating Rate Bond Index is a rule-based, market-value weighted index engineered to measure the performance and characteristics of floating-rate coupon U.S. Treasuries, which have a maturity greater than 12 months.
Money Flow; The Money Flow Index (MFI) is a momentum indicator that measures the flow of money into and out of a security over a specified period. It is related to the Relative Strength Index (RSI) but incorporates volume, whereas the RSI only considers
SK-SD Stochastics. When an oversold stochastic moves up through its MA, a buy signal is produced. Furthermore, Lane recommends that the stochastic line be smoothed twice with three-period simple moving averages: SK is the three-period simple moving average of K, and SD is the three-period simple moving average of SK
Rising Wedge; A rising wedge is a technical indicator, suggesting a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex