coolhand's Account Talk

[coolhand]

All G. Too many bearish indicators lining up. While we may indeed see a big snap back rally soon, it could come from much lower, which defeats the purpose of trying to catch it. Since we're nearing the end of the month, I'm fine with going to all cash here. But remember, I have a lot of exposure to bonds and select stocks in my portfolio outside TSP and that also influences how I trade TSP. The indicators are what they are presently and that has me reigning in exposure to stocks.

 

[coolhand]

Forgot to mention that I bought more ESD today. Got my additional shares at $18.16/share.

 

[coolhand]

I think it's safe to say that market character has now changed. There was volume behind yesterday's move and it seemed like everything was selling off. Stocks, bonds, gold, etc.



This chart, which I have posted here several times before, foretold a likely downward move back when the S&P hit its intraday high on May 22nd. You can see that price got extended by a little more than 6% above the 50 dma that day. That's what that red line signifies. That's often a likely turning point as it has proven here. At the time, the Fed was still very much supporting price. So I only anticipated a possible pullback as far as the 50 dma. And we bounced off that line twice before yesterday. But then it was tested a third time and broke that moving average decisively. On volume. Now I've got my eye on the lower red line, which signifies price 6% below the 50 dma. That could be a target, so there's plenty of room for price to move lower still if this thing has legs (and I think it does).



The bond market is telling us much the same thing. Character has changed. It's been changing since the beginning of May. Looking at AGG, we can see that the 50 dma is getting ready to cross the 200 dma. Not good. And the selling pressure has been consistent for weeks now. Look at yesterday's volume spike. It's huge.

I anticipate the next one or two months to be much more challenging for the bulls.

 

[DreamboatAnnie]

Thanks for your analysis! Only in 15 % in stocks at this point but still looks like trend is downward. Hoping market takes a small bounce up today so I can bail and wait for a clearer bottom. I should have gotten completely out back in May when mACD went negative but I did not follow my strategy and was hoping for an upswing. Using first IFT today. I still kindof feel like the market over-reacted so maybe it will go back up a bit today... But just so volatile. Annie

 

[coolhand]

Thanks for your analysis! Only in 15 % in stocks at this point but still looks like trend is downward. Hoping market takes a small bounce up today so I can bail and wait for a clearer bottom. I should have gotten completely out back in May when mACD went negative but I did not follow my strategy and was hoping for an upswing. Using first IFT today. I still kindof feel like the market over-reacted so maybe it will go back up a bit today... But just so volatile. Annie

I would have liked to have kept some stock exposure in TSP yesterday, but the technical indicators weren't just bearish, they were saying the game has changed. While we are certainly due for a bounce, it's also possible the bulls could have a hard time getting out in the short term. I didn't want to take that chance and positioned myself for the intermediate term, which is decidedly down. You're actually in very good shape if you're only 15% exposed right now.

 

[coolhand]

Preliminary auto-tracker readings show the Top 50 flashing a buy for next week as their collective stock exposure fell from 94.6% last to a current reading of 71.8%. That's a drop of 22.8%, which in a bull market is a weekly buy signal. The Total Tracker has seen a much more modest dip in stock exposure as their collective exposure currently sits at 44.21%.

Remember, this is only a preliminary signal. I don't have Friday's numbers yet. I'm also assuming this will remain a bull market. It may or may not. Only time will tell. But that makes the potential buy signal a bit suspect. Market character is changing so caution is warranted.

 

[shitepoke]

CH
any clue as to why bonds are doing so lousy in tune with equities?
E

 

[coolhand]

CH
any clue as to why bonds are doing so lousy in tune with equities?
E

My guess is that there is dissent among bankers regarding ultra low interest rates. There's just no end in sight for such a policy as current economics is still fragile. It's a precarious situation for the Fed. We've also got the uncertainty of the new Fed Chair in the not-to-distant future.

As a side note, I've been wondering if Obamacare factors into any of this. I, like so many others, am not sure how that will play out. But if it's as expensive as some claim, it would not be a plus for this economy.

And then there's furloughs. Mine starts in another couple of weeks. Just that much more money removed from the economy. :notrust:

 

[rcknfrewld]

I think that the fed hinted at tapering in the near future which I believe they will ease off their buying of bonds...aren't they buying 80 billion worth every month now...plus interest rates will likely start to creep up eventually which is bad for our F fund

 

[coolhand]

I think that the fed hinted at tapering in the near future which I believe they will ease off their buying of bonds...aren't they buying 80 billion worth every month now...plus interest rates will likely start to creep up eventually which is bad for our F fund

They're buying $85B a month. And yes, there's talk of tapering, which may be finding influence within the banking sector itself.

Higher interest rates are not good for stocks either. But these are fundamental factors and I try not to get too caught up in them as fundamentals are not what have driven this bull market. That's my opinion anyway.

 

[coolhand]

I should make mention that there are some professional traders who think the bond market may force the Fed to continue their QE program. If the Fed truly wants to keep rates in the dirt, they'll have to do something to reverse the current bond sell off. But then there are arguments that even more QE may become counterproductive. Or worse.

 

[nnuut]

I should make mention that there are some professional traders who think the bond market may force the Fed to continue their QE program. If the Fed truly wants to keep rates in the dirt, they'll have to do something to reverse the current bond sell off. But then there are arguments that even more QE may become counterproductive. Or worse.

It could be time for their irresponsible methods to catch up with them.

 

[Boghie]

CH,

My money is that they are no longer purchasing $85 Billion of Federal Bonds. And, they are going to allow bonds and Treasuries to float to normalized levels. The 'F Fund' might be something to look at in a few months. Not so much right now...

 

[coolhand]

CH,

My money is that they are no longer purchasing $85 Billion of Federal Bonds. And, they are going to allow bonds and Treasuries to float to normalized levels. The 'F Fund' might be something to look at in a few months. Not so much right now...

I'm also watching to see any if there's any impact in the G fund. It's not the same thing (as you indicated), but I'm watching just the same.

 

[Boghie]

I'm also watching to see any if there's any impact in the G fund. It's not the same thing (as you indicated), but I'm watching just the same.

I think that is a nice call. The interest rate on the 'G Fund' will also tell us if the Federal Gubmint will be under more fiscal pressure. Hope not, this furlough is going to be miserable. Luckily, my car payment ends in August and I have enough in that account to zero the allocation today - which I just did. By the way, changing allocations and allotments will occur no later than the pay period starting June 29th (which will actually be the July 19 pay day...). Sequester Day!!! Storm the Bastille.

 

[tc5]

Hello Coolhand- I am very interested in your current thoughts and/or concerns about FAX. Am considering cashing out to minimize loss and preserve what's left. Do you watch Australian Dollar as well and if so, what does your crystal ball tell you? Thank you CH and best regards.

 

[coolhand]

Hello Coolhand- I am very interested in your current thoughts and/or concerns about FAX. Am considering cashing out to minimize loss and preserve what's left. Do you watch Australian Dollar as well and if so, what does your crystal ball tell you? Thank you CH and best regards.

FAX is part of my IRA portfolio. Obviously, it has taken some sizable hits in recent trading as has bonds in general. I do not generally "trade" these instruments as they are part of my diversification plan. But I do try to pick reasonable entry points in order to position myself for an opportunity of not just dividend gains, but capital appreciation too. I know it can be disconcerting to buy a stock or fund and watch is tank in the short term though. It's difficult to say what's going to happen in the currency markets. I don't follow them all that much, but things could turn around quickly if the Federal Reserve decides to ramp up support for the US market again. And I can't help but think that's likely in the weeks ahead. I also think this fund, like many other bond funds are looking more attractive, not only because of the higher yields, but also because there's greater potential for capital appreciation. If you look at the historical performance of FAX over the past 10 years, it's done very well over the long haul in spite of currency fluctuations. That's partly why I chose it as part of my personal portfolio. One more thing. It's NAV ($6.87) is well above Friday's closing price of $6.16 and that also makes it more attractive to new investors. But I certainly admit, we could go lower still. For what it's worth, I do not have any intention of selling my position in this closed end fund. But if the long term is not palatable for you, I would expect some measure of a bounce next week given the oversold conditions (which I really think are over done at this point). That's not a given though, just a reasonable expectation.

 

[coolhand]

Liquidity fell hard on Friday and is now neutral. That means there is no bid by the Fed under this market at this time. If liquidity falls any further, it goes into contraction and that means money is being pulled out. Under these conditions I am not surprised that selling pressure is continuing. There seems to be few places to hide in either bonds or stocks. The G fund is the safe haven in this situation. So risk is very elevated right now and markets are reacting on a global scale. I am already all G fund in my TSP account, but I will not be going to cash in my IRAs. There is no telling how far this weakness will go and a huge counter trend rally is always possible. I'll let the dividends pile up and look for opportunities to add to my portfolio in the weeks ahead. For TSP, I'll be looking for indications to begin buying stock funds again in the July-August time frame.

 

[coolhand]

A note about my personal portfolio management. I manage my TSP account differently than my IRAs. One reason is that they are very different accounts. TSP is very restrictive in what you can invest in and how often you can reposition your account. I manage my IRAs with Scottrade (there are other good choices out there), which gives me much more flexibility in where I put my investments and how often I can change positions. Since I am 100% G fund in TSP, I take my stock and bond market risk in my IRAs. I do not believe in "trading" my money too often and I also don't believe in cashing out of all positions in market environments like the one we're enduring right now. Currently, I'd say about 33% of my total portfolio is exposed to stocks and bonds. Since I can never be absolutely sure what the market is going to do, I try to increase and decrease my positions in all accounts based on perceived risk as indicated in my personal analysis of charts and sentiment. I do not intend to stay 100% G fund for too long. At some point, risk will swing the other way and it will be time to increase my stock exposure in TSP. We each have our own investment/trading objectives, but I'd like folks to better understand mine. There's more to it than what I've described, but this is what I do in a nutshell. I'll expand on all of this over time.

 

[coolhand]

Well, the markets picked up where they left off last (OPEX aside) week as the sellers resumed their selling. What can we expect in the weeks ahead? I've got several charts that try to discern possible targets for a short term bottom.



Using Bollinger Bands we can see that price on the S&P has traded below the lower bollinger band for the past three trading days. MACD is very low and getting more vertical. RSI is weak, but not yet oversold. We can turn very soon for a very short term rally, but I suspect it will get sold and may be hard to play in TSP. That's assuming we get a rally tomorrow. Our sentiment survey is on a buy this week and I did get a Top 50 buy signal, so even if this week closes red, I'd still expect a rally in here somewhere. That's the very short term.



Looking at Fib retracements, we're already under the 38.2% level. The 50% is a reasonable bounce point and it's very near the 1550 level a lot of traders are watching, but while I would agree we could rally in this area, we are dropping too fast for me to think it would be anything more than a short term rally (again, assuming we get one) as the negative action suggests a longer term decline. Note that I am using the initial intermediate term rally point at the beginning of the year as a reference point. We are in a seasonally weak period and the intermediate term is confirmed to be down, so it made sense to me to use that price point as the retracement reference.



I showed you previously how the May 22nd high turned out to be the turning point in this market by using 6% and 8% envelopes around the 50 dma. This can also work in reverse. The lower envelope shows that 1520 is now 6% below the 50 dma. That could be another target area for a reversal. I actually think it is a more logical target for the intermediate term. But I doubt we get there right away and that 6% level could continue to move lower in the days ahead should the action get choppy, but retain its downward bias.



And then of course there's the fear of higher interest rates helping drive this downside action. And we can see the yield on the 10 Year Note climbed a bit more today. MACD is sky high and climbing and RSI is showing significant strength associated with this move.

In general, a lot of stocks and bonds are going to drop along with the major averages unless something changes the current dynamics at play. There is uncertainty about Fed policy moving forward, which is probably the major underlying reason for the change in market character. Liquidity levels falling to neutral on Friday has not gone unnoticed by a lot of traders either. This certainly speaks volumes about how the Fed feels about market support at the moment.