Stock Market Updates: Reading The Market Across Time Frames

With the month of March and Q1 in the books, its time to take another look and update some stats from my recent articles to try to get a sense of what’s happening out there. Stock Market Updates: Reading The Market Across Time Frames

Those who have followed me on twitter for some time or know me professionally, will attest to the fact that I am a big believer in what the markets ARE doing as a basis to formulate an opinion of where it MAY go. So for me, market internals matter, volume trends matter and I am a big believer in underlying trends. I was taught that finding out what traders aredoing is measurably more important than what they say they are doing although I do believe sentiment indicators at extremes offer some very important clues for traders.

That said, let’s dig in and look at the S&P 500 Index (INDEXSP:.INX) across multiple investing time frames.

In my last update, I mentioned the broad market S&P 500 was butting up against the upper Bollinger band on the monthly chart set to 2 standard deviations from the 13 period exponential MA which for as long as I have been trading, has been the ultimate measure of an overbought market. I also mentioned how we haven’t closed above this measure since March of 2000. We have hugged the line or traded above it intra month several times but invariably pullback to close below it. Last month we traded right up to the level and pulled back to set lows for the month and finally close roughly at the mid point of the trading range for the month.

April expands the upside boundary of the band to roughly 2427.65 on the SPX but as I mentioned above, the analysis on what traders are doing combined with deteriorating sentiment points to a good chance for some more downside ahead. I do think that over the next month or so we will trade down to the 40 week simple moving average which is the blue line in the weekly chart below which roughly corresponds to the 200 day MA.

Taking a look at the daily chart below, the clear point of failure has been the 21 day MA. The past 3 sessions have been stonewalled at the 21 day which has turned lower. I mentioned last update that the market was settling into a 2 step forward 3 step back sort of pattern deteriorating further as we roll into April and I don’t see much to make me change my mind here.

So before anyone slaps a bear tag on me let me state that I don’t foresee much more downside than another successful test of the 200 day SMA (40 week SMA) and another push forward. I don’t generally like to make longer term predictions because the longer the time horizon the greater the potential of unknown or poorly understood variables to emerge. I think the pace of fed hikes matter, I think the efficacy of the Trump administration in implementing their agenda matters and these are real important variables with very plausible opinions on how both negative and positive outcomes could affect markets. So bottom line here, I prefer to trade what’s ahead of me and deal with these situations as they present themselves to us over the coming months.

In that vein of trading what’s ahead, I still am of the opinion that the energy sector offers some good opportunities here and I am accumulating bullish positions in the following. XOM, HAL, OXY, RIG and SLB. I have on 50% of my allocation and will add on weakness this month. Again there are many others that look attractive as well in the broad energy sector.

As for the short side, here’s a little disclosure here: I don’t short stocks and haven’t in a while. Why? The bar has been set very high for shorting stocks, particularly what I trade which are large cap very liquid stocks. I prefer to trade opportunities on the long side and take advantage of the relentless bid this market has enjoyed over the past several years now. It is what it is, one day perhaps markets revert to what those of us that have been around beyond the past 8 to 10 years understand markets to be.

Thanks for reading.

Welcome To Trading Goodly!

Hello everyone, I am CJ Mendes and I have been a trader and professional market participant for nearly 30 years.

As a trader, I have studied markets and tried many different strategies for trading both personal and professional accounts and I have found one thing in common between these strategies and it’s that they all work in some environments and not in others. Markets are dynamic and ever changing and so should its participants.

This blog isn’t about finding the holy grail of trading… It’s not about telling you I have the strategy that beats all strategies, it’s a written account of my trials and experiments with different styles and my conclusions. The reason I have created this blog is to hopefully save readers from making some of the same mistakes I have made, costly mistakes at that and at the same time share some of my successful strategies.

I have written for several publications in the past but today you will find my updates here and in See It Market.

I ask that if I capture your interest with what I say, that you get involved within my site. I love to talk about markets and trading! It’s not only what I do for a living, it’s my passion! Comments are always welcome.

Trading is hard….

Let’s get something out of the way… Trading successfully (i.e. profitably) is incredibly hard. Anyone who tells you otherwise is simply misguiding you. As a trader, you are up against some of the brightest, well informed opponents every single day. Its critically important to learn to pick your battles.

If day trading is your main genre, you may not get much out of our site.

I trade stocks and options on large cap stocks and ETFs. My holding periods range from a few days to a couple of months. The larger and more liquid the stock, the better I have found my chances are.

Thanks for stopping by!

Cheers,

CJ

Stock Market Updates: Sector Rotation Accelerates

Both of these sectors are beginning to roll over and that has kept the broad market S&P 500 (NYSEARCA:SPY) spinning its gears and looking vulnerable. stock market updates

I mentioned in the last couple of updates that the S&P 500 had reached 2 standard deviations above its 13 month MA which is indeed thin air territory. Perhaps yesterday’s sell-off is the start of a pullback…

We have backed away from it a bit and I still am of the opinion that the highs are in for this month.

An early recipient of inflows in this latest rotation appears to be the unloved energy sector, particularly large integrated companies such as Exxon Mobil (NYSE:XOM) and Schlumberger (NYSE:SLB). Again this is very early in the rotation and caution should still apply but I am building positions in the following:

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Again these are starter positions on a sector I think will do well in the next couple of months.

Sector Rotation

Rotation is the lifeblood of the bull market. I wanted to put out a few sector charts to highlight how some sectors are looking today.

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Thanks for reading and trade safe!

 

Twitter:  @CJMendes

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

NOT INVESTMENT ADVICE – PLEASE READ INVESTMENT DISCLAIMER.

 

 

Stock Market Updates: Using Time Frames To Manage Portfolio Risk

March 13, 2017

The broad market S&P 500 Index (INDEXSP:.INX) is showing some extreme signs of exhaustion following an incredible run post presidential election.

This last leg of the 8 year bull market in equities has shown some aspects that we could begin to equate to a longer term blowoff top. Now to be clear I am generally bullish equities longer term but I have become increasingly bearish in the near term.

The near term catalysts that have propelled markets forward have to do with various aspects of the Trump agenda.

Primarily it has to do with tax reform and the potential for many billions of dollars to come onshore via repatriation, money which, due to the onerous corporate tax environment in our country today, presently sits offshore. That would be extremely stimulative and could create a wave of stock buybacks, capital spending and perhaps even special dividends to shareholders, all of which would be very bullish for stocks.

Other aspects of the Trump agenda have also been seen as beneficial to particular sectors of the economy such as talk of rolling back Dodd-Frank for the banking sector or streamlining drug the FDA drug approval process for the health care sector. Last but not least is the massive proposed infrastructure spending programs which would create many jobs and be very stimulative to the lackluster economy.

What all of these have in common is that they are only proposed policies and even though Trump enjoys a majority in the House and Senate today, for these measures to come to fruition, he will have to have bipartisan support and bipartisan anything is wishful thinking in Washington these days.

Markets are ahead of themselves here as the saying goes and we have reached some significant measures of overbought that have been telling in the past.

Below is a monthly bar chart of the S&P 500 index. The Bollinger band’s simple moving average (middle line) is set to 13 periods (months in this case) and the outer bands are 2 full standard deviations above and below.

We are trading right up to the 2 STD line already following the major push higher in February. Since the 2009 low, we have not closed above this metric. The last time we closed above this same level was in Dec of 1999 and off course we saw a major pullback thereafter.

So no matter how bullish one may be in the longer term time-frame, the near term probability of much higher price levels, at least looking out through this month of March, are slim and consequently, the potential for a 3 to 5% pullback is elevated.

Stock Market Update: Using Time Frames To Manage Portfolio Risk

Markets rarely overshoot this metric to the upside as expectations are usually quickly tempered but often do overshoot these same levels to the downside as we can see in the same chart above. When traders panic, we get sloppy selloffs with everyone trying to get out of the door at the same time as we saw in early 2016.

So as far as my allocations are concerned, I am sitting with 1/4 size positions in several stocks, BAX, MRK, ABT, XOM, AET. Exxon (XOM) and Aetna (AET) are newly opened while the other three have been in the portfolio since late early December 16. Since my last update I have sold TLT, HAL and JBLU. Will visit these on a pullback.

Often part of my strategy is to sell option premium with the hope of being “put” stock at levels I find attractive and will do so on an uptick in voI.

I rarely keep more than 10 positions open in my portfolio and most often manage 6 to 8 positions which is where I am at right now. Lots of cash and I may consider going all cash should we push higher in the SPX this month, above 2 standard deviations from the 13 month SMA although I believe we have put in the high for this month in this index.

Again, this is not a long term bearish call but a tactical trading strategy.

Here are a couple other names I am looking at:  TGT and GE

 

Target Corp Chart (NYSE:TGT)

Stock Market Update: Using Time Frames To Manage Portfolio Risk

 

General Electric Chart (NYSE:GE)

 

Stock Market Update: Using Time Frames To Manage Portfolio Risk

Thanks for reading.

 

Twitter:  @CJMendes

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

NOT INVESTMENT ADVICE – PLEASE READ INVESTMENT DISCLAIMER.

Real Estate Market Bubble… Again?

 Real Estate Markets In Bubble Territory… Again?
Real Estate Market BubbleIn 2006, the U.S. experienced a Real Estate Market Bubble with unimaginable consequences. Homeowner incentives led to overbuilding and too many people were willing to pay skyhigh prices for them with the help of liberal (and at times, fraudulent) mortgages. Home prices today are about 1 percent off of that 2006  peak.

When the housing market collapsed, many lost their primary savings asset, their homes. Home prices sank for years, finally stabilizing in 2012. Today,  the average national home price is at $275,000, which is  just .05 percent of a record high.

Is today’s Real Estate environment any different?

The difference from a decade ago today is that these skyrocketing prices are not being driven by very liberal mortgages that most can’t afford. They are being driven by a lack of homes for sale, as well as record low interest rates. Big difference but a bubble nonetheless. The percent of income required to buy the average house today is 20 percent while in 2006 it was 35 percent. Rates are low, and that makes an important impact on affordability.

The problem is if interest rates start to move up, affordability would decrease. Also, low rates may make homes affordable, but an important number of potential buyers would still not qualify for those low rates or be able to come up with the down payments.

Home equity is also pushing prices higher.

Today, homeowners  have considerably more equity in their homes, roughly 45%,  than they did in the 2006 housing bubble, when they had roughly 25 %. That allows more room for prices to come down and for homeowners to still stay above the red line.

Rental demand is up across the board but primarily for single-family homes, is strong and serves as an income stream for investors. As younger folks age into their home buying years, more than ever before they are choosing to rent, because they either don’t meet mortgage underwriting requirements or are unable to save for a down payment because rents sky-high.

Where do we go from here?

All these factors, unique to today’s housing market, continue to put upward pressure on home prices. Among the nation’s 40 largest cities, 14 have already seen home prices reach new highs. They include, Boston, MA, Charlotte, NC, Austin, TX, Dallas, Portland, Oregon, San Francisco Seattle, Denver and Pittsburgh .  A notable exception was San Jose, California, which boasts some of the highest home prices in the nation, did fall off its highs and absurd price increases in San Francisco are decreasing.

These factors indicate a national real estate market that is much healthier but one that is still prone to major downside consequences. While the outcome of this new bubble may not be as harmful to homeowners and the economy, it could very well hurt those late comers.

The speed of the federal reserve rate hikes will have a say on whether the bursting of this bubble is a messy one or not. A Federal Reserve way behind the curve trying to contain inflation will hold the key to this dynamic.

 

Stock Market Updates – Quantitative, Fundamental and Technical Analysis… In That Order!

Stock market updatesIt has been some time since I wrote a Stock Market Updates blog post and it feels good to share my opinions in this format again!

Today’s post deals with my “order of analysis” and it stems from a conversation I had with a colleague regarding how I approach the myriad of investing and trading decisions in the course of trying to narrow down the best possible vehicles where to deploy capital.

Stocks go up, go down or stay flat in price. If you are long (own the stock) and the stock goes up, you are going to make a profit. If you are long and the stock goes down in price, you are going to incur a loss. If what you own stays stagnant in price you will lose the opportunity cost of allocating your capital elsewhere but in real dollars and cents, beyond the transaction costs, you will not have incurred a gain or a loss. Simple right?

Well it is! What is not simple is this:

How do I know what and when to buy a stock and when to sell it?

First let’s consider some well know facts. Stocks in the long run have about a 70% to 75% chance of being higher or flat on a daily basis. That is a very powerful statement of fact and the primary reason why most individual investors should stay far away from shorting stocks. Shorting stocks is when you borrow shares on margin in hope of closing the trade at a lower price point. Or simply stated, when your bet is that the stock will go down.

So if we agree 75% of the time stocks go up or stay flat, then it follows that our job as investors and traders is to choose those stocks that have a better probability of going up! Of course easier said than done… and in there lies the topic of this post.

 

Quantitative, Fundamental, Technical…

As a market participant I always chuckle at those debates of who is right or wrong or which discipline is “best”, Quantitative Analysis, Fundamental Analysis or Technical Analysis. If you click on the links, you will get a more in-depth description of  each but for the purpose of this article, lets look at it as such:

Quantitative analysis, tries to arrive at an answer by evaluating questions of “How much”.

 

Real buy and sell figures at various price points over time. Some folks out there have begun calling this “evidence based” investing. I am good with quantitative analysis. No need to rename something that has been around for many years just for the sake of launching a new marketing campaign.

This is a factor that I consider paramount. I want to buy a stock that is in the beginning of an accumulation phase. No matter how good a stock may seem from a fundamental or technical basis, if no one is buying the stock, it will languish and remain flat. Do we want our limited allocation of money to be deployed to a stock that will more than likely remain flat? The answer is definitely no. As individual investors we have a limited amount of cash to deploy to our investment positions and a flat stock does us no good.

Many so-called “value” stocks fall under this criteria. Often a stock looks great from a fundamental point of view but for some reason or another it goes unnoticed by the market. If no one is buying it does it matter if it’s a great fundamental story? What is the point of holding a stock for years with the hope that the market will eventually recognize what you have?

Once we find stocks that pass our quantitative analysis and screens, the next thing we look at is the fundamental merits of these stocks. In other words we look to answer the following:

Do I agree with the fundamental reason behind the quantifiable buying of the stock?

Fundamental analysis refers to a company’s business metrics. Is the company earning a profit? is it over valued versus its peers? does it have a price to earnings ratio above the broad market benchmark and so forth. I want to own stocks that are beginning to move higher whose fundamental story makes sense to me. Does the company make a product or offer a service I support and believe in?

Some traders will say this doesn’t matter. “who cares if it’s a “good” company or stock…it’s moving so just buy it” Well this may work in the near term but a stock will eventually trade-off of reality. A hyped up stock with poor fundamentals may fly high quickly but will fall just as quickly. I for one prefer to own stocks I believe in and understand from a fundamental point of view.

 

Technical indicators and pattern recognition

Lastly and least important of all in my opinion is technical analysis. Technical analysis is esoteric in the sense that it can be referred to as art just as easily as it could science. Patterns and the action of traders, (buy or sell) when these patterns are recognized in charts can and do move markets.

Over the years, many quantitative indicators have been lumped into the broad category of “technical analysis” incorrectly. At its pure sense, technical analysis is the study of price action. Technical analysts use price charts to try to determine when both short-term and longer term price inflections are about to occur. In the near term, an understanding of technical analysis can help better an entry or exit point once you are ready to place your trade.

So there you are! Quantitative + Fundamental + Technical analysis. All three have their place, some more so than others. Keep your analysis to this order and watch your profits grow !

 

 

 

Stock market updates- 6 Stocks I’m Buying Into This Stock Market Pullback

6 Stocks I’m Buying Into This Stock Market Pullback

Okay, so we are getting some traction lower within the short term trading horizon. Note that I highlighted my concerns with equity money flows last week.

The move lower is nothing to write home about just yet but it is allowing me to add some to existing long positions, while starting a couple new ones.

So what do I like here?

Note that I typically start positions at 1/4 size with few exceptions. That said, I’m starting JetBlue Airways (NASDAQ:JBLU) at a 1/2 size position today.

This has been a weak move lower so far in the broad markets. It’s currently around 10 to 1 lower early on but not in the size which would be indicative of panic. It’s important to remember that markets do fall on an absence of buyers.

 

My current trading plan/actions:

I’m adding to positions in Merck (NYSE:MRK), Abbott Laboratories (NYSE:ABT), Baxter International(NYSE:BAX), 20+ Year Treasury Bond ETF (NASDAQ:TLT)

I’m starting longs in JetBlue Airways (NASDAQ:JBLU), Freeport McMoRan (NYSE:FCX), Halliburton (NYSE:HAL)

 

Remember, these are my opinion and my analysis.  Here’s a look at the charts:

JetBlue – JBLU 60Min Chart

 

JetBlue – JBLU Daily Chart

 

Freeport McMoRan – FCX Monthly Chart

 

Halliburton – HAL 60Min Chart

halliburton stock chart hal trading analysis january 30

 

20+ Year Treasury Bonds ETF – TLT Monthly Chart

 

Do not allow your political ideology to cloud your trading investment decisions! Look at markets for what they are not what they should be.  Thanks for reading.

 

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

NOT INVESTMENT ADVICE – PLEASE READ INVESTMENT DISCLAIMER.