Thursday, May 31, 2012

Musings on the Golden Cross

Over time, buying when the 50-day moving average crosses above the 200-day average has been a winning strategy. You do not buy the low and sell the high but you do usually get on the right side of the trend.

With a few exceptions, it really worked well for decades. Or should I say during secular bull markets?

The current secular bear has not been so nice for this strategy. And it was rather lousy in 2010 to the present.

Check this out. If you sold the downside cross in 2011 and bought the upside cross in 2011 you held a losing position for five-plus months.

I projected the next cross to occur a month or two from now and it looks like you will sell at a loss, or breakeven at best if your bought the cross in January. And the same sort of thing happened before this chart in 2010.

What? Wasn't the golden cross in January a great buy signal? Well, yes it was if taken on its own. But what in this simple analysis told you when it was really time to sell instead of having to wait for the downside cross and a complete loss of profits?

I have not tested this over prior secular bulls and bears but it does show that something about the past few years sure does not lend itself to the tools of prior periods. I think these tools will once again start to work as intended but for now, caveat analyticum.

Tuesday, May 29, 2012

Lots of jobs

Here is another observation on the economy that flies in the face of, well, my face and beliefs. A walk down the streets of downtown Huntington, NY, one of the larger "metropolises" on Long Island (yes, I chuckled writing that) turned up something peculiar - Help Wanted signs. All kinds of stores, too. if you want a job, go to Huntington and pick the one you like.

But here's the catch - they are all minimum wage. My own college age kid is cutting up vegetables and shrink wrapping them for sale at the local supermarket. $7.25 per hour with a 15-minute break in a five-hour shift. He is not getting rich.

I think it's great. Start low, aim high, build character and earn a paycheck. The capitalist way. But that's not the point of this post. The point is that unemployment, at least in this area, does not have to be so high at the bottom of earning spectrum.

Supporting a family is a different issue.

You all can discuss the politics of all this.

Monday, May 28, 2012

Cars Flying Off the Shelf

This goes against everything I thought about the state of the economy but apparently the local Honda dealer just had a record Memorial Day. I don't know if this is a blockbuster number but they said that they sold 60 cars today. And in the hour we were in there signing a lease on a 2012 Accord they said they sold 20 of them.

I have to admit, the place was jammed when we got there at 5pm. We also got the last spot in their parking lot.

So, are car buyers back? or was May just one of those "tent sale" months when deals were plentiful? Or does everyone just like Hondas?

The smarmy "business manager," who runs the credit check and then tries to sell you add-on insurance for dents, theft and towing - all of which is covered under my auto insurance, by the way - said that Honda was trying to regain market share after losing it following last year's Japanese quake/tsunami and Thailand floods. Reasonable. Of course he made the earthquake and tsunami two separate events - which they weren't.

He then went on to say our lease was 8 bucks a day. Yeah, we got a good deal but come on, that is how you try to tell us we got a super low price? Just like the food ad that gives you cost per serving vs. cost per pound.  Who buys on cost per serving? And when are the gas stations going to lose the "nine tenths" pricing? It meant something when gas was 29 cents but not at 3.89.

Isn't that worth a dollar a day? (whatever "that" is). How much is peace of mind cost? Isn;t your family worth it?

Smarmy, haughty and with fake banter. He shut up quickly when my wife told him that without the low price we'd be at another dealer. Then he really tried to make nice and sound smart when he found out what I do for a living.  Sorry, pal, no free stock advice. And yes, I understand that low interest rates mean low lease prices. And no, I am not impressed with your hedge fund manager name dropping.

So, was it car salesman wheeling and dealing or is everyone buying a new car these days? I think you know the answer. They were giving them away and in my view to pad what was shaping up to a be a record  breaking month for them. See Honda, we are an awesome dealership! We don't make any money but we sure push product for ya!

I need a shower.

Monday, May 21, 2012

Don't like the news? Wait a day

When I went to school in the Boston area (they still rode dinosaurs to the packy) we often heard the expression, "don't like the weather, just wait a minute. In doing a web search for this phrase, it is clear that there are many cities laying such a claim in any time from a minute to 15 minutes to a day.

In a world where flip flopping gets politicians in trouble it is the news that is the worst of all. Today, the stock market rallied on "European Hopes." Friday it fell on "European Fears."  The news flip flopped all the way back to, well, since the financial crisis hit.

Today, stocks rallied. Tomorrow, maybe they will and maybe they don't. It all depends on whether they are making love or (financial) war tomorrow post-G-8 meeting.

Hello, Mr. Client? No, we cannot make an investment plan to take advantage of Euro-schizophrenia.

Friday, May 18, 2012

Unintended Consequences

According to sociologist Robert K. Merton, unintended consequences can be roughly grouped into three types: 
  1. A positive, unexpected benefit (usually referred to as luck, serendipity or a windfall).
  2. A negative, unexpected detriment occurring in addition to the desired effect of the policy 
  3. A perverse effect contrary to what was originally intended (when an intended solution makes a problem worse)
When we talk about the government, which one fits like a glove?  Actually, #2 and #3 fit.  Think about the war on drugs. Restricting access does indeed reduce some consumption but it also creates a black market. It also got young experimenting idiots to smoke sevia.

But since I am a financial guy, let's talk about #3 - the irony of making it worse. You know, the road to hell is paved with good intentions.  Think about low interest rates so people can buy houses. Not only did it create a bubble but it left many of those new house owners in bankrupt and worse off than they were before.

In the stock market, everyone knows (eyeroll) that the small investor was out of it since the last financial blow up. The Fed gooses the market (not the economy) with free money and suddenly everyone is interested in buying Facebook. After all, the fist quarter was one of the best on record.

Those of us in snarky-ville say that the little guy is about to get hosed on Facebook and by extension everything else. Just when you thought it was maybe, kind of safe toe play in the stock market the Fed takes away the punchbowl, analysts prognosticate that Facebook could double before earnings matter and although the stock closed with a teeny tiny gain anyone believing it after the open got snookered.

I have seen this before. IPOs go to the moon and just when my company went public and I was actually allowed to buy into it the end was near. I saw that stock trade at the IPO price as underwriters feverishly supported it. Guess what happened after they stopped?  Kablooey!

You can stop reading here. I am afraid I am about to wax a little political. 

So, thank you Fed for "saving" the economy by allowing banks to base their whole business on arbitrage instead of lending. Thanks for artificially inflating the stock market so it has a long way to fall to get back to true equilibrium. And thanks for keeping saving rates so low so that savers got screwed.

Noble intentions. Unintended consequences.

Smoke 'em

Here is an excerpt from Thursday morning's Quick Takes Pro:

Here we are several days after JP Morgan's big loss. The math says that the loss was a small percentage of their overall business but the stock is still easing lower. If this was such an "absorbable" loss then why is this happening? Analysts fell over themselves to say how this is now one cheap stock but the market seems to be saying something different.

Where there is smoke, there is fire.

How many times has this axiom proved prophetic over the years, especially in bad markets? 
Smoked banks. Downgraded banks. And the BKX has fallen off a cliff.

Tuesday, May 15, 2012

Asset Allocators

You've heard this before: If you ASSUME, you make an A$$ out of U and Me.

How about if you ASSET ALLOCATE, you do something similar to you and your clients.

What? Sacrilege! Asset allocation is tried and true.

Whoa, cupcake, I have a twist for you. I am not against asset allocation. After all, if you moved into bonds and out of stocks in 2008 you did pretty dang well.

But think about what this can do in a steep move - up or down. Let's use the easier to understand - the bear market.

Let's say you reallocate your funds quarterly. Seems reasonable. You want to keep a balance of 60% stocks, 30% bonds and 10% cash. Again, reasonable although not my cup of tea.

Using round numbers, let's say your stocks drop 10% in value. At reallocation time you buy more stocks and trim some of your bonds and cash to get back to that 60-40-10 allocation.  So far, so good, right?

Now let's say stocks drop another 10% and you repeat this process of getting back to 60-40-10.

And then it happens again. This is a bear market. Stocks are going to get cut by 40% in a year - big but not outrageous.

Do you see what has been happening? You've been adding to losing positions and trimming winning positions. Did they teach you that in CFA school?   If the bear lasts long enough, you may have allocated your capital away.

I propose you apply a little technical analysis to the allocation process. Do not reallocate unless the relative values of stocks relative to bonds and cash turns the corner. In other words, when stocks stop falling. Then, by all means, allocate your assume off.

Monday, May 14, 2012

Good news for chartists

In Friday's Quick Takes Pro report, I wrote this seemingly benign phrase. 

"However, it does show that the charts are really starting to telegraph big moves again."

Looking at it again this morning as I was preparing today's missive, it hit me that this was a bit more profound than I thought. QE is seemingly out of the way - at least until the Fed is compelling to "do something," misguided as it is.  With QE gone the market is healing itself. Unfortunately, healing brings pain first.

Think of it like exercise. You know your first weekend out leaves you sore and limping Monday morning. But after a few weeks, you bounce back stronger than you were before. 

So, fellow technical analysts, the world may be safe to ply our trade again.   The word "may" is key.

Wednesday, May 9, 2012

Why do we pay them?

Today, an analyst from a big firm (a really big firm) downgraded shares of Fossil (FOSL) to neutral from overweight. That's fine...except that yesterday the stock collapsed 27%. One more time, why do these analysts get paid so much money?

But there is good news. Today a different analyst at a different firm upgraded it to from hold to buy.  Doesn't that make a whole lot more sense then closing the barn door after the cow left?

And just to be fair to an industry - some people actually protect their clients. This same analyst cut the stock from a buy to hold in February after a big pop higher.

Kudos to the Benchmark Company.

A lump of coal to JP Morgan.  Oops, I said it.

Tuesday, May 8, 2012

Yeah, it was Greece :-p

Man, what a day! No, not that the market fell down this morning but that everyone blamed Greece. As Mad Magazine once parodied, "all the news that fits, we print."

Also, as someone who is faced with daily journalistic deadlines, as well as a publish or perish demand (no column, no paycheck) I know that you cannot blame the media. It's like blaming the banks for charging fees. That's what they are supposed to do.

Sometimes, the news does trump the charts and the market does move when something big happens. Scandal? Enron shares collapse. Fed prints more money? Up we go.

But how many times have you seen something like this?
Monday - Stocks fell as oil prices rose, stoking inflation fears.
Tuesday - Stocks fell as oil prices fell, signaling a slowdown in the economy.


Sometimes stocks go up or down because the collective pressure of buyers and sellers happened to tip one way or the other. Sometimes they move when a technical level is breached changing the market's mood and the herd instinct kicks in.

So, yes, it was Greece today. Or was it France? How about Ireland tanking 3% in two trading days? You did not read about that one, did you?

Maybe the market got toppy because President Obama is ahead in the polls. Or maybe because Mitt Romney is ahead in the polls.

Follow your charts. The market knows better than people do.

Monday, May 7, 2012

Regulation and a CYA society

I can see the reasons why we need regulations. Certainly, we do not want a company dumping toxic waste into the river or lying by omission about business and investment ventures. But there has to be a point when enough is enough.

I do not want to get into the environment vs business or political correctness run amok. Rather, I want to keep it strictly bottom line with my own investments.

Today, I took several envelopes sent to me by Fidelity and threw them unopened into the circular file. Well, that is a little exaggeration because I did open a few. Inside were shareholder update/ semiannual reports for each mutual fund we hold in retirements accounts. One fund per envelope.

Each one was well over 100 pages on that thin tissue paper they use to save weight. Right away, if they have to save weight you know they know that what they are putting out is too much.  Anyway, it runs into details I do not care about.

Yes, sometimes important information is hidden in there and yes it could steer you away from risky investments if you actually knew what you were reading. But why do you have to send it to me? It goes from mailbox to land fill with no information flowing into my head. Well, at least you covered your butt and sent it.

This stuff should be available on line and by request in 2012.

But investors need protection, you say? I agree. That's what they get the big bucks at the SEC for (sic).

From my point of view, this cuts into my return. All of this regulation makes jacks up fees and because I have to pay for the printing and mailing and the army of lawyers needed to facilitate it.

It also makes a good argument to buy an index fund and fuhgeddaboutit, save for general market timing of the big picture.

Investors cannot time the market, you say? Guess what, neither can fund managers.

Thursday, May 3, 2012

Brain Dump

I got nothin'. Any brilliant insights have already been written all over the various outlets on which I write. Actually, my not so brilliant (read: dumb) insights have already gone out over the web, too, flying to all corners of the globe bringing their message of.......(sound of screaming and vinyl records scratching).

Here's the deal, the stock market is sick. Sometimes it acts as if it does not realize it but bear market germs are quietly taking their positions. So what's the blog about today? Whatever tidbits I can recall to conscious memory.

1 - In doing commentary on Weight Watchers (WTW) stock plunging 20% this morning, Charles Payne said it was a sad comment on America. Stocks such as McDonalds, Dominos and Yum Brands are doing great.
2 - Bad economic news is supposed to spark selling but today the worse the news the better stocks do. Thanks Fed and your billions of dollars conjured out of thin air.
3 - Europe is going down.
4 - Hello double dip America.
5 - Retail stocks have done really, really well but unemployment is still high. Just where is the money being spent coming from? And I am not talking about Harry Winston, Sotheby's and Coach. I am talking about stocks catering to the masses.
6 - Apple's big-a**, market saving rally lasted through one premarket session. Once the regular session opened last week it started to fall and keep falling through today.  Suckers.
7 - Excerpt from the April 30 Quick Takes Pro (you mean you still have not take a free trial? Come on already).
Last week, as you know, we posted example after example of insane moves following earnings reports. Most were to the upside - even as the company lost plenty of money - and many were to the downside. The theme was double digit percentage moves but with a big chunk of them in opposite directions.

What's the big deal? Normally, the market either forgives indiscretions at earnings time when it is feeling happy and wants to keep moving higher or it punishes them when it is feeling nasty. Having both at the same time is quite out of the ordinary.

We are channeling the Hindenburg Omen. This indicator is not in force now but it serves as a similar example of a fractured market. In the HO signal, we see lots of new 52-week highs and even more new 52-week lows at the same time as the market moves higher. Call it a narrow market or a disjointed market but the meaning is as ominous as its name.

Seeing massive movement on earnings in opposite directions tells us the same thing.
That's it.
Snark-crest out.