Hello … I decided to post some data that I compiled that has meaningful information to me. Perhaps it might for you too.
In review Moringstar’s Market Valuation Graph and its rolling ten day average discount for the past month seems that value in the markets has increased form a rolling average of 3.1% to 6.3%. In short words, the markets in general seem to have more value in them today than they did thirty days ago, based upon this measure.
In review of the broad sectors for the S&P 500 Index … It seems for the past week and the past month the big three defensive sectors have been the leaders. This past week consumer staples was the best performing with a gain of 2.05%, in second place was utilities with a gain of 2.01% and in third place was health care with a gain of 1.98%. In comparison the index itself recorded a gain of only 0.59%. For the past month the best performing were consumer staples with a gain of 2.14%, in second place was health care with a gain of 1.79% and in third place was utilities with a gain of 1.27%. In comparison the index was down 1.93%. With the big three defensive sectors taking leading roles for the past week and for the past month this might be saying something about the direction of the markets… and, it might not. Is this a sign of a pull back that might possibly trend on into and through the summer? Perhaps, or did these sectors lag the others and are now catching up?
In review of some of the T/A indicators for the S&P 1500 Index that I follow … I find that the MACD is still in a bearish downward trend, the MFI turned bullish this week with its trend line moving upward so it seems money has started to return and with this selling pressure has diminished at least for now. The Slow Stoch moved sideways for the week; and, the price line moved upward. With this I score two positives, one neutral and one negative indicator … still not enough to give a green light from technical analysis alone view … but, an improvement. This might be the hot money crowd playing one last hurrah before it’s officially summertime. Note: I’ve been suckered in before.
Things have improved but not enough to perk my buying interest as there are still a bunch of bad wolfs hanging around that can spoil this … and, there is also a long way to go before we get through the summer (the traditional slow time for stocks).
Note: I am still moderately defensive within my portfolio as I have lightened up in equities and raised cash during the past couple of months and in the process booked some good profits. Most likely, I will need to see the rolling ten day average discount reach ten percent, a trend away form the traditional big three defensive sectors along with some better scores from my T/A review before I do any special equity ballast position buying.
I wonder what your take might be on the markets?
Have a good weekend … and, Good Investing.
Skeeter
Comments
Okay.........you, you are front running and stealing my thunder for my write in progress. But, I had to stop for a bit for the all important 2nd large cup of coffee and decided to peek here.
You note:
"This past week consumer staples was the best performing with a gain of 2.05%, in second place was utilities with a gain of 2.01% and in third place was health care with a gain of 1.98%. In comparison the index itself recorded a gain of only 0.59%. For the past month the best performing were consumer staples with a gain of 2.14%, in second place was health care with a gain of 1.79% and in third place was utilities with a gain of 1.27%. In comparison the index was down 1.93%."
Yup, I see the same thing.
This past week in partiuclar has been a strange one and I too am wondering about rotations taking place in where monies are going. Might we be traveling into another 2011?
Frankly, I am very surprised with the strength in various areas that I would have not expected, over the past week. While there are always ongoing shifts in and out of various sectors, the past week finds some wide swings between the plus and minus. I will attempt to get some of these thoughts into place for the funds boat piece.
Thank you for your thoughts,
Catch
Thanks for this analysis.
I often wonder if historically the markets in April get some juice from last minute contribution by tax payers who contribute to their IRAs as a result of the tax filing process. My daughter did just this this past month and I often made April contributions for either the previous tax year (by contributing prior to the deadline) or after the deadline for the following year (utilizing my part of my refund as a contribution source).
Here's a possible reason things may have turned rosey recently.
Is the Tax Man Helping the Stock Market?
http://blogs.wsj.com/marketbeat/2012/04/17/is-the-tax-man-helping-the-stock-market/
Stocks Tend to Rally for the Tax Man:
"Consider the experience of the Dow Jones Industrial Average since 1955, which is when Apr. 15 became the date on which personal income taxes are due. Since then, the Dow's average gain over the two weeks prior to deadline-day has been a gain of 1.35%. No other month comes close to April's experience; the average two-week gain throughout the entire calendar is just 0.25%.
That may not strike you as a big difference, but on an annualized basis it is equivalent to 42% vs. 7%. The difference is statistically significant at the 95% confidence level that statisticians often use to determine if a pattern is genuine.
Might this early-April strength be another seasonal pattern in disguise? I don't think so."
(may have to use title above in a search to get the full article) :
http://online.barrons.com/article/hulbert_on_markets.html
Hi Catch 22, I will be looking for your weekly review and perhaps some insight into what your take might be on fixed income. I have a pretty good handle on equities but I am not the master of fixed income that you are. Hopefully, you can comment some on the fixed income landscape and your thoughts on how one might want to position for a rising interest rate environment, etc.
Thanks,
Skeeter
Thanks for the information on the tax man stock rally. You know, I have heard a lot about this over the years that the markets seem to get a boost form IRA contributions around mid April ... but, I have never seen anthing that I can recall that provided the detail that you did.
Thanks again for you contribution to the discussion. It does make good sense.
My best,
Skeeter
http://www.marketfolly.com/2012/04/goldman-sachs-recommends-staying-long.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+MarketFolly+(Market+Folly)
Skeeter
hedge fund, bank, insurance company, brokerage firm, etc. – and you’re aware of
the market cycles… and right down to the tendencies in April.
Let’s also suppose that the market has been rising for months going into April.
Wouldn’t you put off taking profits until you calculate that the bulk of the
dumb money has bought into the market?
A market top is a process. The bottom of the market swings is an event.
At market tops the participants are almost entirely invested. There are a dwindling
number of new investors. The market stalls. The institutional investors look around
for different industries and sectors where they hope to squeeze out any additional
profits. This creates a frothy chart action.
The nearest moving averages become their lines in the sand. Right now this is
the 50-day simple moving average.
Notice how the S&P 500 is hugging this line.
The number of breaks below this line and the monthly close above or below this level
may help you determine how aggressive or defensive you choose to be… because if
the institutional investors are watching this, perhaps you should too.
Hi Flack,
Good to hear from you.
Actually, I was thinking of you the other day as I was thinking this was the type of market that the new age investor would enjoy in so much as it was now getting more challenging, at least it has for me. From my thoughts the easy money has been made until we have a good ten percent pull back or so. This would put the S&P 500 Index around 1280 off its recent high of around 1420 and/or Morningstar is showing stocks with a good 10% discount in their Market Valuation Graph. Naturally, I’ll use technical analysis to help pick entries and average in through a process. Curremtly I have the market (S&P 500 Index) around a P/E Ratio of 13.
You may recall when our paths first crossed I was 15% cash, 30% income and 55% equity. Within cash, I was 5% demand and 10% time deposits (CDs). I lightened up income by 5% in October of 2010 as fixed was facing a rising interest rate environment until the European debt crisis came on the scene and with this many investors moved back into fixed an exited equities. I did not as I was finding better opportunities in equities as I played the equity swing with special positions. Today, I am still doing this but, I will have to wait for the next set up before I begin to load special equity positions again. I was fortunate last summer as I caught the markets in a good pull back and bought special positions during the summer. I began to sell them off with good gains as the market moved upward. I completed this process recently leaving my equity allocation at 50% which is a neutral equity allocation for me. I plan to wait here at 25% cash, 25% income and 50% equity until the next equity set up comes. Besides, I now have more demand cash as a good number of my CDs have matured … and, I need to make at least lost interest money. I have now more than done that thus far this year.
Fortunately for me, I don’t have to max my special investments to the extent that a hedge fund or an institutional investor might. I just need to continue to make enough to make my world work. So, I don’t take the risk they do through the use of leverage, shorting and other special strategies they use to maximize return although I do hold some mutual funds that do this. The burden to execute these strategies rest with them and not me and that is why I pay their fees for doing this. Besides I believe this is beyond my skill level as an individual investor. However, I can, somewhat, regulate my risk exposure by adjusting my asset aoolcation.
I believe, one of the board’s missions is to help other investors transverse the path of investing. With this, I enjoy being a contributor of post that I believe others will find of interest. I am happy that this post has found the interest that it has and you chose to make input.
I going to close saying … I await the next set up.
Take care Flack … it was indeed good to hear form you … and, as always your input and comments are welcome. They helped me in the past and I am sure they have helped others that you have not heard from.
My best,
Skeeter
Thank you for your comment(s). They are indeed welcome. I agree about the guru's. I wonder if at times their comments might be self serving. And, I further believe that one should not take on more risk than they are comfortable with. To me, it makes good sence, at your age, to target an equity allocation of about 25% if this is achieving your investment goals and needs. Why take on more risk than necessary?
Good Investing,
Skeeter
Master no; but a kind thought. Still the apprentice working towards the next level.
There are more than enough here who have a most thourough knowledge of bonds and their reactions to market changes. I do feel I have traveled further along the knowledge path to be better prepared for changes when higher bond yields arrive. I offer my 2 cents worth.
Fixed income, as we all know; has very little fixed about its nature, eh? About the only asset, for most folks, in this broad class that could be defined is a rate on a term CD or some form of fixed from an annuity and related.
As to rising interest rates. I will have to follow the big kids crowd with this event. As I/we don't fully know how the big houses will position holdings to rising rates in all bond sectors; regardless of what I may think should or could happen.
My main thoughts about higher bond yields is to, why they have arrived.
1. our economy and/or global economies are more healthy
>>> Being a more natural flow of demand for loans for what we of our age group understand to be normal loans for consumer purchases, construction and related. To this, I am indicating a much more stablized economy with the real estate/housing overhang much diminished, employment levels increasing with meaningful wages, personal and government delevering; which includes debt reduction to be valid. These areas are very lofty goals for a more satisfied and positive moving economic picture. Many economies that have a great influence upon global health, are not healthy at this time.
2. our economy and/or global economies are sideways/stagnant
>>> I would place this as to the current situation of uncertainty.
3. bond traders are forcing a government to take corrective actions
>>> I will not say that bond traders may cause interest rates to rise; but will perform trades relative to what they find as a necessary action to protect and/or gain from their bond portfolios, not unlike equity traders. The result could be higher interest rates from these actions. The higher rates may also pose a problem for government(s) abilities to pay these higher yields. Another aspect of this is that governments would have to consider austerity programs and to delever their spending programs even further.
Higher interest rate trends that actually stay in place "should" find a bond portfolio placed in floating rate, high yield and short duration funds to retain value. The theoretical for any of these bond sectors; however, is no different than equity sectors. Regardless of what you or I think should be the obvious direction of a sector, given a set of conditions, find it does not always happen. The high yield sector noted here may prosper if rates are moving higher from a stronger economy; but may suffer if higher rates are the result of folks no longer wanting some bonds without receiving a higher rate of return via yield, to offset perceived risk; not unlike some government bonds currently issued by several European countries.
Much of this scenario is now on center stage in Europe; and may move to this country at some point in time. Although Europe's central banking system can not be directly compared to the Fed. here; difficulties of attempting to manage money flows is similar.
My summary is that regardless of what one may learn as to what should happen with a given bond sector, based upon numerous scenarios; would likely happen. However, as with many equity sectors everywhere; the bond markets too remain distorted from the market melt of 2008 and central bank policies not seen in our lifetimes. Further distortions exist from the big trading houses and the speed of trades. You and I could re-read 5 times, "bonds 101" from their web site and understand what should happen as bond yields move up or down, and to a point this would be true. Political interventions and inside fighting are causing many problems in attempting to establish any perceived "normal baseline" of value.
What I must watch relative to our bond mix is the IG bonds related to global government's. The spreads among the perceived good and bad tells some of the story, not unlike this morning (April 23, 10am) finding scared equity markets and monies moving into U.S, German and British gov't issues driving yields down again and prices up. The reverse may be found for Spanish or Italian 10 year issues losing value and higher yields. Perceived quality, quality, quality. I have not looked at the following this morning; but feel from Asian and Euro equity markets being a bit nasty from a 6am quick peek; that anything in our bond mix that is government issue is higher in price, emerging market issues may be flat to down (stronger $), HY losing value and IG corporate gaining value.
Aside from watching yield moves of the major economies, one must keep avery close eye to the political side, too.
For bonds, I watch these etf's to provide conformations for what I think I see:
SHY, IEF, TLT, TIP, AGG, LQD, EMB, HYG, JNK
Bond investing during these uncertain times is at least as complex as one attempting to determine which equity sectors are most favorable. Your understanding and use of your charting methods should allow you to review various bond sectors to study their movements. The single best option may be to review total bond/multi-sector bond funds to find something to fit your needs and rely upon the manager(s) abilities.
Skeeter, I have reread this; and it is about as clear as mud. The old brain cells just are not in gear this morning. Got a bit too much on the work plate today and this week.
Regards,
Catch
Howdy,
I’m glad to see that you’ve been doing well.
Technically speaking, we’re at an interesting market position.
The S&P 500 has put in a high (April 4th) as identified by a lower high
(April 17th) and it’s presently testing the April 10th low.
If we were to see a textbook materialization, we would see the price fall
further over the next few days. This would then be followed by a bounce higher.
This bounce would stop short of reaching the April 17th high and then fall again.
I have no idea if this will happen, textbook scenarios being… well, textbook.
My long-term equity position is going nowhere since it has been completely hedged
since 1390 on April 9th.
Continued good luck going forward,
FLACK
You noted, "My long-term equity position is going nowhere since it has been completely hedged since 1390 on April 9th."
Are you using inverse etf's or other for your hedge positions?
Thank you and regards,
Catch
I'm using SH (the inverse S&P 500 ETF) to hedge my LT portfolio.
On the trading side - and maybe only a handful of readers are the least bit
interested in this - I'm doing a bit of day trading using SDS.
Hey, let's make the best of it,
FLACK
Hi Catch,
Thanks for your response to my question that I presented to you that asked how you felt one should position for a rising interest rate environment.
Reading what you wrote … In short words … You felt that high yield, short maturity and floating rate funds should fair better than other sectors. I trend to agree with you on that. Currently, I don’t hold any floating rate funds although I do hold some funds that have some floating rate securities in them along with some convertible securities.
Below I have listed what I consider to be my income generating funds within my portfolio. The yield is detailed in (x.xx%) following the name of the fund. I do own some stocks but I have not listed them.
Most of my income funds are listed below in which I hold meaningful positions. They are LIGRX, Loomis Sayles Investment Grade Bond Fund (5.16%) … LALDX, Lord Abbett Short Duration Income Fund (4.41%) … NEFRX, Loomis Sayles Core Bond Fund (4.14%) … STIAX, Federated Strategic Income Fund (5.66%) … CAPAX, Federated Capital & Income Fund (5.22%) … FKINX, Franklin Income Fund (6.56%) … NEFZX, Loomis Sayles Strategic Income (5.85%) … ISFAX, Lord Abbott Diversified Income Fund (5.44%) … PASAX, Pimco All Asset Fund (6.63%) … PGBAX, Principal Global Diversified Income Fund (5.29%) … TPINX, Templeton Global Bond Fund (6.12%) … IGPAX, ING Target Payment Fund (6.29%) … TSIAX, Thornburg Strategic Income Fund (6.32%).
Some of my growth and income funds that are kicking off good distributions are AZNAX, Allianz NACM Income & Growth Fund (8.70% distribution) … TBIAX, Thornburg Investment Income Builder (6.36%) … EADIX, Eaton Vance Tax Managed Global Dividend Income Fund (4.97%) … AMECX, Income of America Fund (4.02%) … CBIAX, Capital Income Builder (4.11%) … PMDAX, Principal Small & Midcap Dividend Income Fund (4.08%) … LPEFX, Financial Private Equity Fund (9.33%) … and, JCRAX, Jefferies Asset Management Commodity Strategy Fund (8.02%) plus a few others as this list is getting to long (twenty funds) to keep going, but these are the higher yielding ones.
Let me just say this … currently if it is not kicking off some type of income distribution in some form and fashion … I don’t own it … anywhere within my portfolio … even with my small and mid cap funds they have to provide some income. As you can see the theme here is diversified income generation.
I don’t know how this “hodge podge” of funds will hold up in a down draft … but, before the risk grade site closed … to individual investors … most of these funds scored real well. Boy, I do miss that site.
Catch thanks for taking the time to write your thoughts on fixed income. I went beyond fixed income in my response back to you … but, as you can see I am all across the board with funds that generate income for me … perhaps, it might help some readers find some income generating funds that they might wish to do their own due diligence.
Thanks again for your response … I’ll take a look see at some floating rate funds.
Skeeter
Well gee there..........you've got bonds just about every which way.
Have you run the funds through the M* check-o-matic to find a nominal grouping by bond sector/type?
Thank you for your work with your holdings list.
Take care,
Catch