SLEY Capital Advisors L.P. Blog

Understanding the Basics of Bonds

2010-06-07T15:54:00.000-07:00

There are certain things you must understand about bonds before you start investing in them. Not understanding these things may cause you to purchase the wrong bonds, at the wrong maturity date.

The three most important things that must be considered when purchasing a bond include the par value, the maturity date, and the coupon rate.

The par value of a bond refers to the amount of money you will receive when the bond reaches its maturity date. In other words, you will receive your initial investment back when the bond reaches maturity.

The maturity date is of course the date that the bond will reach its full value. On this date, you will receive your initial investment, plus the interest that your money has earned.

Corporate and State and Local Government bonds can be ‘called’ before they reach their maturity, at which time the corporation or issuing Government will return your initial investment, along with the interest that it has earned thus far. Federal bonds cannot be ‘called.’

The coupon rate is the interest that you will receive when the bond reaches maturity. This number is written as a percentage, and you must use other information to find out what the interest will be. A bond that has a par value of $2000, with a coupon rate of 5% would earn $100 per year until it reaches maturity.

Because bonds are not issued by banks, many people don’t understand how to go about buying one. There are two ways this can be done.

You can use a broker or brokerage firm to make the purchase for you or you can go directly to the Government. If you use a brokerage, you will more than likely be charged a commission fee. If you want to use a broker, shop around for the lowest commissions!

Purchasing directly through the Government isn’t nearly as hard as it once was. There is a program called Treasury Direct which will allow you to purchase bonds and all of your bonds will be held in one account, that you will have easy access to. This will allow you to avoid using a broker or brokerage firm.

Wild Markets, Looking for A Safe Haven? Better Think Twice About That Haven

2010-05-12T10:38:00.000-07:00

Normally, when markets get really wild, as they have been lately, investors pour into to safe haven assets. These assets are generally highly liquid, and relatively provide extremely low returns. When market uncertainty increases, and investors become risk averse, the crowd will flood into investments like bonds, money market funds, treasuries, and the dollar.

Many investors get to the point of taking their money out of the markets when volatility and uncertainty picks up. When this happens it creates a huge demand for the US Dollar, and consequentially the US Dollar benefits and begins to strengthen.

Although there is nothing wrong with getting out of the equity markets and into safe haven assets, such as the dollar, there is a key factor at the moment that may make that play a bit more risky.

This factor is the recent market sentiment for the US Dollar. I spoke of sentiment on the dollar last December, and recommend a GBP/USD short and EUR/CHF short, which performed very well with each pair dropping substantially. However, that same sentiment may be changing to be a negative thing for the US Dollar in the medium term.

If you are in need of a safe haven in these turbulent times (volatility surged several days ago) then you may want to consider rushing into a different currency than the US Dollar. Why? because sentiment is changing....

Current dollar *sentiment against the British Pound and Swiss Franc:

GBPUSD - The ratio of long to short positions in the GBPUSD stands at -1.17 as nearly 54% of traders are short. Yesterday, the ratio was at 1.27 as 56% of open positions were long. In detail, long positions are 6.6% lower than yesterday and 32.1% weaker since last week. Short positions are 38.8% higher than yesterday and 1.9% stronger since last week. Open interest is 13.3% stronger than yesterday and 12.8% below its monthly average. The SSI is a contrarian indicator and signals more GBPUSD gains.

USDCHF - The ratio of long to short positions in the USDCHF stands at -1.06 as nearly 51% of traders are short. Yesterday, the ratio was at -1.24 as 55% of open positions were short. In detail, long positions are 7.0% higher than yesterday and 7.9% stronger since last week. Short positions are 9.0% lower than yesterday and 53.1% weaker since last week. Open interest is 1.9% weaker than yesterday and 26.8% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF gains.

What does this suggest?

It suggests that the dollar strength sentiment I spoke of several months ago in December is now running out of steam, and sentiment is now turning in favor of dollar weakness against these pairs for the short to medium term. Therefore, as a safe haven investment US Dollar cash investments are not looking so good based on currency market sentiment. If anything, you may want to consider rushing into the GBP or Swiss Franc to ride out these rough and indecisive times.

*FXCM sentiment data

Sound Investing for Retirement

2010-05-01T13:02:00.000-07:00

Retirement may be a long way off for you – or it might be right around the corner. No matter how near or far it is, you’ve absolutely got to start saving for it now. However, saving for retirement isn’t what it used to be with the increase in cost of living and the instability of social security. You have to invest for your retirement, as opposed to saving for it!

Let’s start by taking a look at the retirement plan offered by your company. Once upon a time, these plans were quite sound. However, after the Enron upset and all that followed, people aren’t as secure in their company retirement plans anymore. If you choose not to invest in your company’s retirement plan, you do have other options.

First, you can invest in stocks, bonds, mutual funds, certificates of deposit, and money market accounts. You do not have to state to anybody that the returns on these investments are to be used for retirement. Just simply let your money grow overtime, and when certain investments reach their maturity, reinvest them and continue to let your money grow.

You can also open an Individual Retirement Account (IRA). IRA’s are quite popular because the money is not taxed until you withdraw the funds. You may also be able to deduct your IRA contributions from the taxes that you owe. An IRA can be opened at most banks. A ROTH IRA is a newer type of retirement account. With a Roth, you pay taxes on the money that you are investing in your account, but when you cash out, no federal taxes are owed. Roth IRA’s can also be opened at a financial institution.

Another popular type of retirement account is the 401(k). 401(k’s) are typically offered through employers, but you may be able to open a 401(k) on your own. You should speak with a financial planner or accountant to help you with this. The Keogh plan is another type of IRA that is suitable for self employed people. Self-employed small business owners may also be interested in Simplified Employee Pension Plans (SEP). This is another type of Keogh plan that people typically find easier to administer than a regular Keogh plan.

Whichever retirement investment you choose, just make sure you choose one! Again, do not depend on social security, company retirement plans, or even an inheritance that may or may not come through! Take care of your financial future by investing in it today.

Choosing A Broker

2010-03-19T14:00:00.001-07:00

Depending on the type of investing that you plan to do, you may need to hire a broker to handle your investments for you. Brokers work for brokerage houses and have the ability to buy and sell stock on the stock exchange. You may wonder if you really need a broker. The answer is yes. If you intend to buy or sell stocks on the stock exchange, you must have a broker.

Stockbrokers are required to pass two different tests in order to obtain their license. These tests are very difficult, and most brokers have a background in business or finance, with a Bachelors or Masters Degree.

It is very important to understand the difference between a broker and a stock market analyst. An analyst literally analyzes the stock market, and predicts what it will or will not do, or how specific stocks will perform. A stock broker is only there to follow your instructions to either buy or sell stock… not to analyze stocks.

However, some brokers may try to push stocks to you and give you there analysis and try to get you to buy or sell. Do not listen to any broker, because there is conflicts of interest and will not offer the best advice to you due to their desire to get a commission. Stick to listening to the professional investment advisors, traders, investors, and analysts whom actually invest, not just take orders. There is a common fallacy of thinking that brokers are traders or investors, that is wrong, they are the order takers for the investors and traders.

Brokers earn their money from commissions on sales in most cases. When you instruct your broker to buy or sell a stock, they earn a set percentage of the transaction. Many brokers charge a flat ‘per transaction’ fee.

There are two types of brokers: Full service brokers and discount brokers. Full service brokers can usually offer more types of investments, may provide you with investment advice, and is usually paid in commissions.

Discount brokers typically do not offer any advice and do no research – they just do as you ask them to do, without all of the bells and whistles.

So, the biggest decision you must make when it come to brokers is whether you want a full service broker or a discount broker.

If you are new to investing, you may need to go with a full service broker to ensure that you are making wise investments. They can offer you the skill that you lack at this point. However, if you are already knowledgeable about the stock market, all you really need is a discount broker to make your trades for you.

A Brief Overview Of Common 401k Mistakes

2010-03-03T16:44:00.001-08:00

Believe it or not there are many mistakes that can be made along the way when it comes to financial retirement savings and investing. Unfortunately a good many of these mistakes center around the 401(k), which can be a tremendous boost to your retirement plans when used properly in order to build your portfolio. The problem is that the mistakes are often the only things we hear when it comes to retirement plans and investing. I suggest begin with the mistakes so that we can move along to better information and advice in the near future.

The first and perhaps largest mistakes that people make when it comes to 401 (k) plans is not signing up. Yes you heard that right. What people do not understand is that this is something your employer offers so that you can have some security for your future. It is a manner of saving money for your future that shouldn't be overlooked or taken for granted. Even a bad 401 (k) plan is better than no 401 (k) and with strict regulations those are few and far between. More importantly, if your company offers to match the funds in your 401 (k) plan not taking them up on that offer is literally tossing money in the garbage can.

The next big mistake when it comes to your 401 (k) is risking too little. Rewards come with risk. If you aren't taking any risks with your investment then you are by and large throwing money down the drain. In addition to that, it is nearly impossible to meet your retirement goals without taking some risks, and some hits along the way. This doesn't mean you should be reckless but along the way you are going to need to take some calculated risks in order to receive the bigger payouts that most of us hope for when investing in their retirement funds.

Risking too much. There are many risks involved when investing in the stock market. There are a few that deserve a little more mention than others. First of all, stocks present a fairly large risk, particularly to the uninitiated. While it is true that great rewards are most often the product of great risks you do not want to risk the bulk of your retirement by investing it all in stocks. Another thing you want to avoid doing if at all possible is investing in your company stock. We've seen too many lives destroyed when companies go under taking the financial stability of their employees along with them. Many companies offer incentives to employees for investing in their stock, which may be tempting but I recommend investing as little as possible in your company stock whenever possible as this could lead to problems down the road.

Finally, the worst thing you can do for the health of your 401 (k) is borrow against it. There are so many ways in which this could go wrong and the penalties for this are more than a little prohibitive. They are designed to be that way so that you will use the funds for their intended purpose. If you absolutely have no other option is the only way I would recommend borrowing against your 401 (k) and I would seriously consider selling a kidney before doing that.

When it comes to your financial retirement, 401 (k) mistakes can be far more costly than you may realize. Work to avoid these common mistakes and you should be well on your way to a successful retirement.

Your Risk Tolerance

2010-02-24T17:31:00.000-08:00

This is where most financial advisors or investors go wrong, not properly accounting for risk tolerance. During the recent poor and volatile performance of stocks in 2008 and early 2009 there was not an investor whom did not have their risk tolerance tested. However, some investors were still happy and comfortable during those dismal times for the markets. Why? Because their risk tolerance was properly accounted for. Simple truth is, any individual whom was frustrated, angry, or complaining about the market conditions of 2008 and 2009 has improperly assessed, or was not properly advised on, their risk tolerance.

Assessing your risk tolerance will determine how comfortable you can be with your investments. If your risk tolerance is properly accounted for, no matter how much the markets fall you should still be comfortable and relatively happy with your investments.

Each individual has a risk tolerance that should not be ignored and rigorously understood before any of their capital is invested. Any good stock broker or financial planner knows this, and they should make the effort to help you determine what your risk tolerance is. Do not settle for any financial advisor to just give you a short survey or quiz of 10 questions and small talk for only 15 minutes to determine your risk tolerance. It goes deeper than this; after all, this is among the most important steps in your investing why should it not deserve as much time as anything else?

Determining one’s risk tolerance involves several different things. Mainly for your risk tolerance you need to be aware of your time frame, what you plan to achieve in that time-frame (goals), the amount of cash you have available to invest, and your age.

For instance, if you plan to retire in ten years, and you’ve not saved a single penny towards that end, you will be placed towards higher risk tolerance – because you will need to do some more aggressive – risky – investing in order to reach your financial goal.

On the other side of the coin, if you are in your early twenties and you want to start investing for your retirement at the age of 55, your risk tolerance will be low. You can afford to watch your money grow slowly over decades. In contrary, if you are in your early twenties you may be willing to take more risk because you have many years to recoup a loss or you may have the idea of retiring earlier at age 40 for example and live off of your investments

Realize of course, that your need for a high risk tolerance or your need for a low risk tolerance really has no bearing on how you feel about risk. Again, there are multiple factors in determining your tolerance.

For instance, if you invested in the stock market and you watched the movement of that stock daily and saw that it was dropping slightly, how would you feel? How about asking the question, "If I buy $X worth of this stock what percentage would it have to drop in one month that would cause me to be uncomfortable?" If a drop of over 5% is the threshold that would cause you to be uncomfortable then you would be conservative to moderate on risk tolerance. If you would not be comfortable with anything more than a couple percent drop in one month then you would be highly conservative. In contrary, if it would take a drop of 20% or more within one in order for you to become uncomfortable then you would be aggressive.

Remember, risk and returns go hand in hand. In general, you can expect higher return investments to have higher risk. This is because risk is not only about losing money. Risk involves the amount of deviation or fluctuation from the mean both up and down. As an example if you have the goal of 100% returns in one year, you may place yourself as high risk tolerant, but at the same time if would only be comfortable with a 2% drop in one month then you would have to choose which is more important and meet in the middle, accept lower returns for more comfort. In this example, you would have to have moderate risk tolerance.

Would you sell out or would you let your money ride? If you have a low tolerance for risk, you would want to sell out… if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your financial goals are. This tolerance is based on how you feel about your money!

In the end it is goals, goals, goals and a complete understanding of what it takes to achieve those goals that will determine your risk tolerance.

Again, a good financial planner or stock broker should help you determine the level of risk that you are comfortable with, and help you choose your investments accordingly.

A Pharmaceutical Stock Poised to Rise

2010-02-15T16:41:00.000-08:00

This is a stock that we had recommended in early September, actually it was mentioned as a superb buy on our investment DVD that was made in early September. We recommended this stock last September for a variety of reasons, both technical and fundamental.

Teva Pharmaceutical (TEVA) - This worldwide pharmaceutical company known for its bio-generics and active pharmaceutical ingredients, has been in an uptrend since the late '90's.

Since our September recommendation, TEVA is up close to 16% in only 4 months. However, TEVA is still showing some positive signs and potential for another burst higher.

What is the potential for TEVA?

Another 10-15% higher within several months. Why? Technically TEVA has recently been in a very bullish pattern on the daily chart, this pattern is called a bullish flag. Also, TEVA has just broke upwards out of the bullish flag pattern which is a confirmation. With the nature of bullish flag patterns, TEVA should head another 10% higher minimum within a relatively short period of time, 3-6 months.

(Click to Enlarge)

Recently, TEVA's strong upward trend has made it an institutional favorite. The 50-day moving average has been where buyers have been trampling this stock and supporting it on the way up, so you may want to consider buying at the 50-day simple moving-average. This moving average is a simple indicator available on many free chart packages including Yahoo Finance and MoneyCentral.

The recent pullback to the 50-day moving average resulted in the normal buying, but shoved it from a small flag that tells us that the advance will more than likely continue with a minimum short to medium term target in the high $60 area.

Recently, S&P just rated TEVA a "five-star strong buy" with a price objective of $70. Lastly, fundamentals are still very healthy for this "drug" stock as well. Therefore, TEVA is a great buy and would be a great addition to the large-cap portion of your portfolio. Also, one thing to remember is that historically the health care sector has been among the top performers when coming out of recession.

Markets Still In Correction Mode, Stay On Defense

2010-02-04T12:01:00.000-08:00

Major indices have been in a large correction this past week. This should not be new to our readers, because we have warned of this correction a few times in the past couple of months. As an update though, we are still moderately bearish on the markets and our analysis shows further fall can be expected from here in there short-medium term.

Due to the fact we are still bearish on the markets we still recommend that you remain overexposed to defensive investments, such as long-term government bonds, corporate bonds, TIPS, and others.

One common adage that you should be aware if and avoid is buying commodities when stocks drop. There is a lag between the two markets, and lately gold has been a leading indicator, advancing before the markets, and falling before the markets. We expect this trend to continue throughout the most part of this year. Therefore, you should not buy commodities as a safe haven investment for the short-medium term. If you want to take your cue from gold to get into stocks due to its leading nature, then a good move would be to wait for gold to confirm a new medium term uptrend. This new uptrend in gold would be confirmed if it broke above $1,135/ounce. Also, we recommend that you avoid short term t-bills, they are in a bubble and there are much safer, higher returning alternatives.

As a more moderate to agressive investment for you to make some descent returns during this correction you may want to consider buying the dollar. Sounds funny huh, buy a dollar? you already have dollars why buy some? Well, buying the dollar actually means going long on, or expecting it to appreciate in value. When the market corrects the dollar in general strengthens against the Euro, British Pound, and other major currencies. You can buy the dollar in a variety of ways.

Some conservative methods of buying the dollar are the PowerShares DB US Dollar Bullish Fund (Symbol:UUP), and the Morgan Stanley Double-Short Euro ETN (Symbol:DRR); just look at how well these two long dollar funds perform when the major indices drop. Both of these two funds are up today, while the DOW is down about 200 points.

More agressive ways to go long the dollar are to short other currencies through a forex otc broker. You must be very careful when doing this. Even though all you would essentialy be doing is one investment for the short-medium term, which would require only one click of the mouse, you still need to understand terms like leverage, margin, and how the trading platform works. If you want to buy the dollar against other currencies as we suggested above, which is the same as shorting other currencies against the dollar, then on your trading platform you will want to place a bid (means sell) position on the pair where the dollar is the quote/counter currency, and in contrast if the dollar is thebase currency you will then want to place an ask (means buy) position. Both of these mean you would be making an investment in future dollar strength.

All of the above investment recommendations are for the short-medium term only, except for the the long-term government bonds, which should outperform well in both the short and long term. With this post we just wanted to inform you of our current stance on the markets and some defensive investment opportunities that will do well if our view continues to unfold. That is why this blog is called "Seedlings To Your Healthiest Money Tree", take these seedlings above and use them wisely.

Lag Of the Curve, May Strike An Investment Nerve

2010-02-02T17:58:00.000-08:00

Have a look at this chart:

What does this show? It shows something very interesting, and that you should be aware of as an investor. Above is a comparison of the 3-month, 5-year, 10-year, and 30-year treasury yields beginning in 1994.

What is its significance? The majority of the time short and long-term yield either rise or fall with high correlation, in tandem. However, there are rare periods when they do not, and currently we are experiencing one of those periods.

A good indicator of a recession, or large stock market correction has been when short-term yields rise above long-term rates. This is technically called an "inverted yield curve". Before every one of the last six recessions there has been an inverted yield curve, occuring on average about 3-6 months before the beginning of the recession.

What is shown in the charts above is that there has been strong flattening of short term yields, while the increase rate of longer term yields has slowed. Now have a look at the chart below:

If you look at at the end, where we currently are, it shows the difference of the 10 and 3-month at the top of the chart (between the 2 dashed horizontal lines).
Now look at what happened after the last time yield differences where at that point. There was a sharp drop down to the circle, the circle is the yield curve inversion.

From history, and the chart above, we can say that the next phase is dropping of long term yields and inversion of the yield curve. At the current rate, and historical trends, we can expect another yield curve inversion to occur within 1-3 years, and another recession in about 4-5 years based on current yield curve analysis.

Currently, this is what we believe will be a large catalyst to the short-term bond bubble (we are currently still in) burst we are expecting. Therefore, as short term yields rise and the yield curve begins to invert, inflation following or floating rate investments (floating bonds, floating bond funds, etc..), should do very well in the years to come. Also, other analysis of ours suggests long-term bond funds in general should do very well in the coming years.

Analysis Of Several Major Markets

2010-01-27T17:30:00.000-08:00

Major stock price indexes have been declining for the recent trading sessions.

S&P 500 (SPX) Cash Index tested Potential Support: 1089.99 is the Gann 12.5% retracement of the 2009-2010 range, and 1089.86 is the actual low of Tuesday, 1/26/2010. ISEE Call/Put Ratio fell to 0.67 on 1/26/10, down from 1.68 on 1/11/10, indicating a shift to pessimism from optimism. The ratio’s 6-year mean is 1.41, its median is 1.36, and its range is 0.51 to 3.16. Recently, some market indicators got oversold enough to support a bounce to the upside.

9 major U.S. stock sectors ranked in order of long-term relative strength:

Consumer Discretionary (XLY) Bullish, Overweight. The Relative Strength Ratio (XLY/SPY) rose above 16-day highs on 1/26/10. XLY/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLY fell below 6-week lows on 1/25/10 and remains below its 50-day simple moving average. Support 28.73 and 28.29. Resistance 30.38, 30.54, 31.95 and 33.76.

Health Care (XLV) Bullish, Overweight. The Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/22/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV traded above its highs of the previous 15 months on 1/20/10. Support 31.07 and 30.88. Resistance 33.16, 33.37 and 33.74.

Technology (XLK) Neutral, Market Weight. The Relative Strength Ratio (XLK/SPY) fell below the lows of the previous 7 weeks on 1/22/10, signaling a downside correction. XLK /SPY fell below its 50- day simple moving average but remains above its rising 200-day simple moving average. Absolute price of XLK fell below 8-week lows and broke down below its 50-day simple moving average but remains above its rising 200-day simple moving average. Support 21.46 and 20.46. Resistance 22.59, 22.87, and 23.05.

Industrial (XLI) Neutral, Market Weight. The Relative Strength Ratio (XLI/SPY) and the absolute price both fell below the lows of the previous 8 days on 1/21/10. XLI/SPY remains above rising 50-day and 200-day simple moving averages. Support 27.67 and 27.46. Resistance 29.61, 30.56 and 32.00.

Consumer Staples (XLP) Neutral, Market Weight. The Relative Strength Ratio (XLP/SPY) rose above the highs of the previous 5 weeks and above its 50-day simple moving average on 1/22/10. XLP/SPY remains below its falling 200-day simple moving average. Absolute price of XLP fell below the lows of the previous 5 weeks on 1/26/10. Support 25.96 and 25.77. Resistance 27.04, 27.18 and 29.29.

Materials (XLB) Neutral, Market Weight. The Relative Strength Ratio (XLB/SPY) ) plunged below the lows of the previous 11 weeks on 1/26/10, confirming a price correction. XLB/SPY fell below both 50- and 200-day simple moving averages on 1/21/10 and have continued to decline. Absolute price of XLB also fell below the lows of the previous 11 weeks on 1/26/10. Support 31.00 and 28.95. Resistance 33.73 and 34.52.

Energy (XLE) Neutral, Market Weight. The Relative Strength Ratio (XLE/SPY) fell below the lows of the previous 3 weeks on 1/26/10. XLE/SPY fell below its 50-day and 200-day simple moving averages. Absolute price of XLE fell below the lows of the previous 5 weeks on 1/26/10. Support 55.88 and 54.17. Resistance 58.52 and 59.90.

Utilities (XLU) Neutral, Market Weight. The Relative Strength Ratio (XLU/SPY) may be attempting to stabilize since probing 2-year lows on 11/18/09. XLU/SPY moved above its 50-day simple moving average on 1/26/10 but remains below its falling 200-day simple moving average. Absolute price of XLU fell below the lows of the previous 8 weeks on 1/25/10. Support 29.37 and 28.10. Resistance 31.30, 31.64 and 32.08.

Financial (XLF) Bearish, Underweight. The Relative Strength Ratio (XLF/SPY) has been in a downward correction since 10/14/09 and fell below the lows of the previous 3 weeks on 1/26/10. XLF/SPY is in a weak position, below both 50- and 200-day simple moving averages. Absolute price of XLF has been in a correction/consolidation phase since 10/14/09 and fell below the lows of the previous 5 weeks on 1/22/10. Support 13.78 and 13.62. Resistance 14.68, 15.40 and 15.76.

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) fell below the lows of the previous 4 months on 1/26/10. EEM/SPY fell below its 50-day simple moving average on 1/21/10 but remains above its rising 200-day simple moving average. Absolute price of EEM fell below the lows of the previous 12 weeks on 1/26/10. EEM has underperformed the SPY since 10/14/09.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below the lows of the previous 4 weeks on 1/21/10. EFA /SPY fell below its 50-day simple moving average on 1/21/10 but remains above its rising 200-day simple moving average. Absolute price of EFA fell below the lows of the previous 11 weeks on 1/22/10. EFA has underperformed the SPY since 9/9/09.

NASDAQ Composite/S&P 500 Relative Strength Ratio rose above its highs of the previous 8-years on 1/4/10 and remains above its rising 50- and 200-day simple moving averages. Absolute price fell below its 50-day simple moving average on 1/22/10 but remains above its rising 200-day simple moving average.

Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) has been performing sideways/neutral for most of the past 10 months, since March 2009. Longer term, IWF/IWD has been bullish since 8/8/06.

Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) has been performing sideways/neutral for most of the past 8 months, since May 2009. Longer term, IWD/SPY has been bearish since 3/22/07, and we assume that major trends continue--until proved otherwise.

The S&P 500 Equally Weighted ETF Relative Strength Ratio (RSP/SPY) rose further above previous 6-year highs on 1/8/10. RSP/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of RSP rose to a new 15-month closing price high on 1/8/10, then broke down below 5-week lows on 1/26/10.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell further below the lows of the previous 3 months on 12/22/09. OEX/SPX remains below its falling 50- and 200-day simple moving averages.

The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose to a new 3-month high on 1/22/10 and remains above both its 50- and 200-day simple moving averages. Absolute price of IWM fell below 5-week lows on 1/26/10 after rising above 15-month highs on 1/8/10, indicating a short-term correction within a long-term uptrend.

The Mid Cap/Large Cap Relative Strength Ratio (MDY/SPY) rose above the highs of the previous 4 months on 1/22/10. MDY/SPY remains above its 50- and 200-day simple moving averages. Absolute price of MDY rose above 15-month highs on 1/11/10, then broke down below 5-week lows on 1/25/10.

CRB Index of commodity prices fell below 5-week lows on 1/26/10.

Crude Oil nearest futures contract price fell below 5-week lows on 1/26/10, confirming a minor correction. Oil is below its 50-day simple moving average but well above its rising 200-day simple moving average. Support 73.52, 72.72, 72.45, 68.59, and 65.05. Resistance 77.06, 79.47, 80.36, 83.95, 85.82 and 98.65.

Gold nearest futures contract price broke down below 4-week lows on 1/22/10, confirming a minor correction. Gold is below its 50-day simple moving average but well above its rising 200-day simple moving average. Support 1075.2 and 1028.0. Resistance 1163.0, 1170.2, 1196.8 and 1226.4.

Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) fell to a 6-month low on 1/23/10 after falling below both 50- and 200-day simple moving averages on 1/15/10. The gold mining stocks have underperformed gold bullion since 9/17/09.

Silver/Gold Ratio fell sharply since 1/19/10, breaking below both 50- and 200-day simple moving averages, suggesting new doubts about prospects for the world economy.

Copper nearest futures contract price broke down below 4-week on 1/22/10 and consolidated since. Falling copper prices suggest doubts about global economic prospects. Support 3.2475, 3.06 and 2.966. Resistance 3.47, 3.544, 3.5625, 3.5625, and 3.79.

U.S. Treasury Bond nearest futures contract price rose above 5-week highs on 1/26/10, confirming the short-term trend as bullish. The Bond is above its 50-day simple moving average but is still below its 200-day simple moving average. Support 118.02, 116.22, 115.24, 114.16, 113.04 and 112.15. Resistance 119.08 and 120.08.

Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) fell below the lows of the previous 6 weeks on 1/22/10, signaling a downside correction. JNK/LQD has been testing its 50- day simple moving average and remains above its rising 200-day simple moving average. Absolute price of JNK fell below 6-week lows and broke down below its 50-day simple moving average on 1/22/10 but remains above its rising 200-day simple moving average.

U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) rose to another new 15-month high on 1/7/10, again confirming a bullish long-term trend. TIP/IEF remains above rising 50- and 200-day simple moving averages. Bond investors may be growing increasingly concerned about the inflation outlook, despite assurances of tame inflation by economists.

The U.S. dollar nearest futures contract price rose above 3-month highs on 1/21/10 and has consolidated gains since. USD has been holding above its rising 50-day simple moving average and is challenging its falling 200-day simple moving average. Support 78.20, 76.74 and 75.90. Resistance 79.00 and 79.695.

The Art of Contrary Thinking: The various surveys of investor sentiment are best considered as background factors. The majority of investors can be right for a long time before a major trend finally changes course. The Art of Contrary Thinking is best used together with more precise market timing tools.

Advisory Service Sentiment: There were 52.2% Bulls versus 18.9% Bears as of 1/20/10, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio fell to 2.76, down from 3.36 on 1/13/10, which was the highest ratio of bullish sentiment in 6 years. The 20-year range of the ratio is 0.41 to 3.74, the median is 1.50, and the mean is 1.57.

VIX Fear Index jumped to 27.31 on 1/22/10, up from 17.55 on 1/11/10, which was its lowest level in 26 months. VIX is down from a closing high of 80.86 set on 11/20/08. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.

VXN Fear Index jumped to 28.37 on 1/22/10, up from 17.73 on 1/14/10, which was its lowest level in 26 months. VXN is down from a closing high of 80.64 set on 11/20/08. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.

ISEE Call/Put Ratio fell to 0.67, down from 1.68 on 1/11/10, indicating a shift to pessimism from optimism. The ratio’s 6-year mean is 1.41, its median is 1.36, and its range is 0.51 to 3.16.

CBOE Put/Call Ratio rose to 0.65, up from 0.49 on 1/8/10, a reversion to the mean. The ratio’s 6-year mean is 0.66, its median is 0.64, and its range is 0.35 to 1.35.

The Dow Theory last confirmed a Bullish Major Trend on 1/11/10, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 14 months. The Dow Theory signaled the current Primary Tide Bull Market on 7/23/09, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 6 months. That 7/23/09 signal reversed the previous signal: the two Averages signaled a Primary Tide Bear Market on 11/21/07, when both Averages closed below their closing price lows of August 2007.

Quick Way To Boost Your Investment Expertise

2010-01-25T13:39:00.000-08:00

You do not trade or invest in the markets, no one does. Now that might sound surprising to many of you. But what you really trade or invest in are your or someone else s beliefs about the market. Furthermore, your ability to do so is tempered by your beliefs about yourself or the other person such as an advisor, or money manager.

Spend some time and jot down your beliefs about yourself. These beliefs will typically start with words like

I am...
I feel...
I experience myself as...

Now if this sort of exercise is new to you, when you first do it, you'll probably write down a bunch of your positive attributes. Furthermore, you'll probably have trouble writing down more than twenty or thirty such beliefs. But you probably have hundreds.

However start your list. Let's say you think for about five minutes and you come up with the following items:

I am a fairly good trader/investor.
I feel positive about my potential.
I like myself.
I am fairly astute in thinking about the markets.
I am intelligent.
I am creative.

You know there are a lot more, but after 15-20 minutes of thought that's all you can come up with then that is fine. Now you need to continue this exercise each time you make a trade or investment, both at opening the position or closing it.

For example, let's say it's Monday morning and you open positions in the market. After doing so you continue to assess yourself and you notice two things:

I'm feeling really excited.
I like fast moving stocks.

Okay you've gained some insight about yourself.

By mid afternoon the market is in a steep decline and three of your stocks are down $500 on the day. Now you start thinking to yourself:

I feel angry about that position. I just got in and it's going against me.
I'm not going to let them take advantage of me this time. I'll hang on until it comes back.

Notice that you've just gathered some more insights about yourself. Keep this up until you've written down 100 or more statements that reflect you and your feelings. When you do, you'll have a lot more insight about how you invest or trade. This is a great way to start enhancing your investor/trader psychology and you will be starting down the path towards becoming a much better investor or trader.

Concept of Intermarket Analysis

2010-01-20T14:53:00.000-08:00

Intuitively, investors and traders know that many markets are interrelated. They realize that a development that affects one market is likely to have repercussions in other markets. No market is isolated in today's global financial system. However, technical analysis has traditionally emphasized single-market analysis, focusing on one chart at a time and failing to keep up with structural changes that have occurred in financial markets as the global economy has emerged with advances in telecommunications and increasing internationalization of business and commerce.

Many individual traders or investors still rely upon the same types of mass-marketed, single-market analysis tools and information sources that have been around since the early 1970s. There is a large percentage of traders/investors who continue to end up losing their capital. If you are still doing what the masses are doing with their analysis, isn’t it likely that you will have the average-below average returns the mass experiences, or possibly even end up losing all your hard-earned money?

In the currency, stock, and bond markets especially, you cannot ignore the broader intermarket context affecting the market that you are investing in, or trading. You need to technically analyze the behavior of each individual market to see the double tops or broken trendlines or indicator crossovers that so many other traders are following, because that is part of the mass psychology that drives price action. However, it is increasingly important that you factor into your analysis the external intermarket forces that influence each market being traded.

What Is More Important Than Being Right In Investing?

2010-01-18T10:17:00.000-08:00

Here is a list of the major methods of trading or investing:

Trend following – If you buy what’s going up, it will probably continue.

Value Investing – Buy what’s undervalued because it will eventually become overvalued.

Seasonality – The market tends to show seasonal patterns that you can capitalize upon.

Band Trading – It’s possible to draw bands to describe the nature of an investment. Those bands will allow you to sell when the price gets too high and buy when it gets too low.

Elliot Wave – The market moves in a sequence of five waves up and three waves down, and if you can understand the various levels to this, you can predict tops and bottoms.

There is a multitude of other strategies, but can you notice the relation between all of the above? Every investment method or strategy has its main focus on predicting. Predicting and speculation is what most people believe investing is about, and that is where they place most of there focus. For example, if you are a trend follower, you are predicting that the trend will continue in a certain direction. If you are a value investor/trader you are predicting that what’s undervalued will go up eventually.

However, observing the track record of some of the worlds greatest investors and richest men who use these methods, you will find that investing is not about predicting. These major players often have a winning trade or investment percentage of less than 50%. This means less than half of all investments or trades they make turn into a profit.

So how do they generate consistent double-digit returns year after year, sometimes even several hundred percent returns is they are loosing more trades/investments than they are winning?

It is because they cut their losses short, let profits run, and implement rigorous risk management. It is ultimately the risk management that separates the great investors from the bad. Their has literally been fortunes made on using astronomy (star alignments) for taking investments/trades, but what made the fortune was that they implemented sound risk management.

I have yet to hear anyone say, “I don’t make money picking stocks – I make money by cutting my losses short and letting my profits run. And more importantly, I meet my investment objectives through the judicious use of position sizing.”

Ultimately, it really does not matter what criteria/strategy you use for picking your trades or investments. That is only a small part towards the start of real investment success. What’s really critical is that you understand that you make money by cutting losses short, letting profits run, and employing risk management.

Understand the concepts of position sizing, margin requirements, the max loss you would accept in a given amount of time, the concept of stop losses, and other risk management methodology such as the Kelly Criterion, Variance, Standard Deviation,, and volatility. You do not have to learn all risk management, but just a few. Remember, that the criteria you use for getting in to an investment is not the only thing you should consider when finally entering.

Is Steel The Real Deal?

2010-01-14T14:09:00.000-08:00

Are you positioned for a global economic recovery? One way to do this is to have some exposure to the steel sector. As the economy grows, this will spur demand for all things composed of steel. Economic growth will help demand for real-estate, cars, and machinery. Also, in the steel sector is considered a leading indicator of capital spending and economic growth, so you will want to take advantage of this sector early.

One way you can invest in the steel sector is through the NYSE Arca Steel Index, or through the Dow Jones Steel Index. The Dow Jones Steel Index was strongly higher this week, closing above a 38.2% fibonacci resistance level. The next major resistance, 50% resistance level stands at 338, which is nearly 16% above current levels. More importantly, the relative strength completed a bottom formation this past week (point 1) as it moved above resistance at line a. The strength in this industry should have positive implications for the economy as a whole.

Figure 2 - Click to Enlarge

A nice steel stock is Steel Dynamics (STLD) which has also broken out upwards on the weekly charts, closing well above the September highs at $18.56. Strong resistance at the 38.2% retracement fibonacci level been overcome the next major resistance is at $23, nearly 15% above current levels. If the rally from point c is equal to that from points a to b, the target is at $26, with the 61.8% resistance at $28.50. First good support is at $16.50, with major support at $13.50. The OBV has overcome its major resistance (line 1) at point d, and is not far below the highs made in 2008. This suggests the breakout is valid. Other steel stocks you should consider are: AKS, WOR, and NUE.

Things To Be Aware Of Before Utilizing A Roth IRA

2010-01-11T17:50:00.000-08:00

Basically, Roth IRA's are accounts that investors set up to save for retirement. They come in various forms, including the two that I'm going to talk about here - traditional IRAs and Roth IRAs.

On the surface, a Roth IRA seems like the best bet, as it allows for tax-free accumulation of profits on your contributions. A great idea, for sure. But there's a catch: It's always been restricted to people who earned less than a certain amount. If you earned more, you were forced to use a traditional IRA, where the gains are taxed. Until now.

A recent change in the tax laws regarding qualifications for Roth IRAs, versus traditional IRAs, should have many folks jumping for joy. Until this year, you couldn't qualify for a Roth IRA unless you fell below specific income requirements. But the government has now decreed that anyone can have a Roth IRA, regardless of their income level. Furthermore, if you have a traditional IRA, you can switch it over to a Roth - with all future gains and distributions being tax-free. This all sounds excellent for you, right? Well that is because you are unaware of...

The Roth Trap

While spending your hard-earned money tax-free when you retire sounds like a great idea, there are catches. Several catches. And you need to be well-informed before you even think about making the switch to a Roth IRA.

Here are just a couple of issues:

~ Government: The government is angling for a lot of cash with this move. Think about the trillions of dollars sitting in retirement accounts. The lure of collecting taxes early on those trillions makes even the sleepiest bureaucrat wake up.

~ Tax Implications: Any money you switch from your regular IRA to a Roth will be taxable. This means you'll pay tax on these funds at the marginal rate over a couple of years.

However, if you're at the 25% tax rate and you decide to make the switch, the amount you transfer will increase your marginal rate and possibly push you into the 35% bracket or higher.

Ask yourself, What will your estimated tax rate be at retirement? If it's going to be lower and you're within a few years of retiring, the Roth switch may not be for you. Also, the taxes due must come from somewhere.

Switch Now... Or Pay Later? An example...

Let's take a traditional IRA with $500,000 in it.

If you switched to a Roth, you'd owe at least $175,000 in taxes at the 35% tax rate. That would leave your investible capital at $325,000. But the pros tell me that you need to pay that $175,000 out of other funds so your IRA is intact and can earn money tax-free without having to spend years getting your principal back to square one. Hmm, now where can I find an extra $175,000 lying around?

The thinking behind making the Roth tax switch now is simple: Taxes are going up (maybe way up, thanks to our lavish spending habits), so better to cough it up now before you really have to hand over some big bucks later.

In fact, it's not out of the realm of possibility that marginal tax rates will top 50% for the highest earners within a couple of years - something that would make the Roth switch really expensive.

The upside, however, is that tax history doesn't usually change because of fiscal responsibility, but because of political will. Over the past 40 years, we've seen marginal rates decline from over 70% to the low 30% level.

And while we're on the upward slope today, who knows where we'll be in 20 years? Taxes might have declined by the time you take a distribution. So scare tactics aside, let's look at a couple of solutions...

Thinking About Switching to a Roth IRA? Consider...

~ Status Quo: The easiest thing to do is let your traditional, tax-exempt IRA continue to grow and just pay the taxes at the marginal rate upon distribution. The money you'd have to find to pay the taxes today (compounded at a reasonable rate going forward) would likely make up for a good chunk of what you'd pay in taxes later anyway. And if your rate is lower in the future, you may actually come out ahead if you're looking at a period of 10 or 20 years.

~ Switch in Stages: If you're going to switch to a Roth IRA, don't let the government fool you into thinking that you can pay the taxes over the next two or three years. From what I can tell, it's a gimmick - it wants the money now.

Instead, consider switching over a longer period of time, transferring just enough each year, so that your tax bite doesn't vault you into some ungodly high tax bracket. For example, if you have $500,000 to switch, transfer $50,000 a year over 10 years and pay the tax on that amount - it's a lot more manageable. Check with your accountant that there are no future restrictions on switching your IRA in this way. If not, then there is no reason to do it all at once.

Do Not Forget About the Small Side Of Your Portfolio

2010-01-06T11:04:00.001-08:00

Small cap stocks are more volatile in general than the overall markets. Due to this reason they experience greater booms and greater busts. Another important fact you should know is small caps outperform when coming out of recessions, so how much of your investment allocation was in small caps since mid last year? If none at all and you are a mid-long term investor then you really should start gaining exposure to small caps near these levels; and yes, even if you are a conservative investor. Adding more volatile asset classes to a portfolio does not necessarily increase the overall portfolio volatility(or risk), to an extent it can actually decrease the volatility because small caps are generally ahead of the curve.

Small caps have underperformed throughout November and early December, and since mid December began to outperform the broader markets. A good representation of this is the US small cap ETF (Symbol:IJT), which completed its continuation pattern on December 22. Current targets on the upside for IJT are $60, and then $63. On the downside a break below 57.15 should bring rise to $55, and below $55 there should be a test of $50 (a good buying point.

Looking at the global small cap ETF (SCZ) we can see that it is in a range. Upper boundary for this range is $37.85 and the lower boundary is $34.50. A breakout is imminent in this ETF and be prepared when it occurs. An upside breakout of this range should lead to a test of $40, and a downside breakout would have its first target at $33. However, with this ETF there is still a strong uptrend, and the momentum indicators are still slightly bullish suggestion at least another retest of the upper end of the range at $37.

Both if these ETFs suggest further gains for small cap stocks in general. Purchasing one of these ETFs is one way to gain exposure to small caps; however, there is a multitude of other ways. You could also purchase a small basket (about 5) of small cap stocks. Remember, just because these two ETFs suggest broad small cap market gains you still must perform, or have a financial advisor perform analysis and research on the selection of the individual stocks. Do not just randomly choose and think you are properly invested because you are diversified. Diversification is not the only factor to be considered, you must have an investment strategy and research applied to every investment decision.

Be Aware Of the Dangers In Holding Exchange Traded Funds Long-Term

2010-01-04T13:30:00.000-08:00

Many believe that ETFs are great investments to own long-term. However, most investors do not know the fact that some ETFs do not literally own what they are represented in their names or prospectus to own. This aspect of ETFs is a danger for investors in them and also dangerous to the economic climate. Some ETFs are actually more like derivatives, which sometimes the party that created the derivative or is on the opposite of your position/investment cannot honor its end of the bargain.

Using the Gold ETF, GLD, as an example if you own GLD you probably know that it is somewhat like owning gold, and there is a lot of people who think it is exactly the same as owning gold bullion. However, these two beliefs are false and there is a big difference. Only theoretically the GLD ETF Trust owns about 850 tons of gold, but in reality it does not own that much real gold. In fact, it does not own much real gold at all.

In the GLD Trust Prospectus of late 2004 we found it has no method of guaranteeing how much real gold it does own. Also, GLD ETF has no knowledge and no way of finding out that the gold that is held in trust for it, is actually there or not.

One possibility could be that the bank that should be holding their gold already has it leased out. Stated another way, banks could be playing the same game with the GLD trust gold that they do with your money. They hold your money on deposit, theoretically, but most of it they do not have for long and it is given out in loans.

Recently, there has been worries about the government confiscating gold. So what would happen if the 850 tons of gold GLD only theoretically owns (about $25 billion worth) suddenly disappears? It would certainly hurt investors in the GLD trust ETF, and probably have other economical effects.

GLD, has no way to legally confirm if the gold being kept by the custodian (which is the European bank HSBC) is actually in the their vault. Also, HSBC has the right to use other banks as "subcustodians" to hold some of the gold making it even harder for GLD to actually know what is being physically held. Taking it to extremes, these subcustodians actually can use other subcustodians of their own, meaning GLD has sub-subcustodians.

With the way GLD is set up, there are multitudes of legal barriers that prevent anyone from verifying if the gold is in the vault or leased out. Thus, GLD could very literally have actually no Gold at all on hand to actually back up the 850 tons of gold it claims to have.

The ability of the Trustee to monitor the performance of the Custodian may be limited because under the Custody Agreements the Trustee may, only up to twice a year, visit the premises of the Custodian for the purpose of examining the Trust's gold and certain related records maintained by the Custodian (p. 37).

Following information is from the GLD prospectus:

The Trustee and auditor are not allowed to visit the Custodian “when no gold of the Trust is held in the Custodian's vault.” (p. 48). And this could occur when it is being held by subcustodians. Thus, the Trustee of GLD has a limited ability to determine what the Custodian is doing and no ability to determine what the subcustodians (at any level) are doing. “The Custodian is not responsible for the actions or inactions of subcustodians.” (p. 44) And the Trustee has no right to audit the gold or even any financial records about the gold of the subcustodians.

“In addition, the Trustee has no right to visit the premises of any subcustodian for the purposes of examining the Trust's gold or any records maintained by the subcustodian, and no subcustodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian." (p.37). Furthermore, the Prospectus states that “because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust's gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust.” (p. 12).

Current subcustodians appear to be one US bank: JP Morgan (which has $US93 trillion in derivative exposure), one Canadian Bank: The Bank of Nova Scotia, and four European banks: the custodian, The Bank of England, Deutsche Bank AG, and UBSAG.
All of these banks actively lease gold.

Another noteworthy factor to consider is that the GLD trust does not insure its gold. Stated in the Prospectus, only the Custodian is responsible for insurance and “shareholders can not be assured that the Custodian will maintain adequate insurance” (p. 11). Furthermore, “Custodian and the Trustee will not require any direct or indirect subcustodians to be insured or bonded” with respect to gold held by the subcustodians on behalf of the Trust (p. 11).

“Consequently, a loss may be suffered with respect to the Trust's gold which is not covered by insurance and for which no person is liable in damages” (p. 11). If subcustodians are used outside of the U.S., it may be difficult or impossible to seek legal remedy against the subcustodians (p. 12). This is significant because the Custodian's primary vault is in London. The subcustodians' vaults can be anywhere in the world. If the subcustodians fail to return any gold that they have to the HSBC, the major custodian, there is no contractual obligations that can be enforced.

According to many analysts the European banking system is going to experience problems for quite some time. It is this banking system that holds the gold in the GLD Trust. The Daily Telegraph reported several months ago that European banks may have to write off nearly ten times more than the U.S. banks. This is because they have lent aggressively to Emerging Europe, which has imploded and been even more aggressively involved in the subprime debacle than their U.S. counterparts. Furthermore, they have no printing press like the Federal Reserve to print trillions of Euros to exchange for the junk debt like the U.S.

GLD and in my opinion most ETFs are fine for short term trading. However, for holding long term positions, they could face a disaster with solvency and liquidity issues. And if one of the most well known ETFs, GLD, is organized in this manner described above, then as a long-term investor you should really look at the prospectus of any other ETF that you plan to hold for any substantial length of time.

Become A Better Investor Through Specialization

2009-12-30T17:43:00.000-08:00

What can you do to immediately become a better investor/trader? There are several things you can do to immediately speed up your investment learning curve. One of those is specialization. Investment/Trading specialization is one of the most important stages that aspiring investors/trader can reach in their development. In fact, the sooner you are able to reach this place, the better off you will be and the higher your returns will be.

When you step out into the investment and trading world, you are instantly pitting yourself against an extraordinary array of competitors and professionals. There are literally millions of others out there who want the same profits you want, and the laws of the marketplace simply object to everybody walking away with bags filled with riches. In fact, most will walk away with significantly less capital than they started with.

Given this intense competition, market inefficiency, and the limited space inside the investment winners' circle, do you really want to go out there and compete half-heartedly in a whole host of events, likely losing at nearly all of them? In investing it is a much better idea to become an absolute, top-of-the-line expert in one area, and then go out and win the field in that specialty.

As far as specialties go, there are very many options you have. Here are some choices you have to distinguish your investment specialization:

Time Frame: This is one of the first and most basic distinctions that you can make as an investor/trader. While the thought of mastering every single time frame is appealing, and it may in fact be your long-term goal, you do not have to do it all at once. Choosing a time frame to specialize in allows your trading to be customized for you and your schedule. It also gives you direction as to what strategies you should be more focused on.

Patterns/Strategy: You can further specialize yourself by limiting the number of patterns you choose to utilize. By limiting the patterns, indicators, or other factors that comprise your strategy this allows you to solidify your investment plan and follow it rigorously. If you specialize your strategy this mean you specialize the criteria or rules that tell you to get in and get out of the market. You will then become a more disciplined and focused investor, which is always a good thing.

Markets/Sectors: There are many investors/traders out there who specialize in a particular sector, or sometimes a few select industry groups that they understand very well. Also, there are just as many who specialize in just one specific market, such as currencies, emerging markets, bonds, etc..Perhaps you have a professional background you can bring to bear regarding your sector analysis. Narrowing the field in this manner is yet another way to become an expert investor/trader. I have met a trader who trades only Pork Bellies, pays zero attention to any of the other markets (DOW, S&P, Gold, etc..) and achieves very high returns (sometimes triple digits) because of this specialization.

Market Stages: Some of us choose to hone in on one of four market stages as our chosen trading environment. For purposes of making these distinctions, there are really three categories: Uptrend, downtrend, and consolidations. I have met several traders who actually do best in and therefore trade only in a range environment. Others love it best when the market is tanking, and invest/trade on the short side. The majority, however, will probably gravitate to uptrends for their time frame of choice. You can also develop a system to glide between the various market stages, investing in up, down, or sideways markets.

There are certainly other specializations you can have as an investor/trader, but these above are the basics and where you should start to hone your skills. I find it is easier to start with choosing the time frame and market then move on to the other specialty areas. It is fine to mix and match between them, as long as your final criteria exhibit enough restrictions to qualify as a true specialty. If you do choose to have several specializations just make sure each specialization has a system with rules that adhere to those criteria. For example you can utilize both a short-term crude oil contrarion trading system, while also using a long-term technology shorting system; however, you would not want to mix the two systems rules together, keep them both specialized and separated from one another.

Technical Analysis Of the Metals Market

2009-12-29T16:32:00.000-08:00

Gold has closed lower today due to break of support levels, and remains below the 10-day moving average crossing near 1110.00. Stochastics and the RSI are oversold and are both still suggesting for more losses.Closes above the 20-day moving average crossing at 1137.40 are needed to confirm that a short-term low has been posted. If a further decline ensues from here the 38% retracement level of this year's rally crossing at 1032.60 is the next downside target. First resistance is the 10-day moving average crossing at 1109.00. Second resistance is the 20-day moving average crossing at 1137.40. First support is last Tuesday's low crossing at 1075.20. Second support is the 38% retracement level of this year's rally crossing at 1032.60.

Silver closed lower due to long covering and breaks of short term support levels; also, silver extended this month's trading range. The mid-range close sets the stage for a steady opening Wednesday. Stochastics and the RSI are both moderately oversold, diverging, and are turning bullish hinting that a short-term low might be in, or is near. Closes above the 20-day moving average crossing at 17.779 are needed to confirm that a short-term low has been posted. The reaction low crossing at 16.155 is the next downside target. First resistance is the 20-day moving average crossing at 17.779. Second resistance is this month's high crossing at 19.500. First support is last Tuesday's low crossing at 16.780. Second support is the reaction low crossing at 16.155.

Copper has managed to close higher today as it continues its short term rally. Also, Copper has posted a new high for the year. The high-range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are still bullish signaling that sideways to higher prices are possible near-term. The 87% retracement level of the 2008-decline crossing at 3.48 is the next upside target. Closes below the 20-day moving average crossing at 3.18 are needed to confirm that a short-term top has been posted. First resistance is yesterday's high crossing at 3.344. Second resistance is the 87% retracement level of the 2008-decline crossing at 3.48. First support is the 20-day moving average crossing at 3.18; second support is the reaction low crossing at 3.08.

We are currently bearish on both Gold and Silver in the medium to short-term, suggesting that you still have time to purchase these two hard commodities at lower prices in the near future. However, we are neutral at the moment on Copper, and waiting for it to close above 3.34 which at that point we will turn bullish, or close below 3.18 would turn us bearish on copper for the short term.

How To Enroll Into A Debt Management Program

2009-12-28T18:04:00.000-08:00

If you’re having a tough time to make the monthly minimum payments on your credit cards and other forms of unsecured debt, then a debt management program (DMP) might be the answer to all your problems. A debt management program can make you debt free and help you get back the control over your finances. Most of the people become overextended with debt as a result of delayed payments that lead to late fees and increased interest rates. People often spend frivolously with their credit cards and max out on their cards, which subsequently result in over the limit fees.

With extra fees and raised interest rates, your payments go out of your control and you find it harder to pay off your debts. In this kind of circumstances, you can use a debt management program to come out of the debt trap.

Collect your statements for credit cards and all other unsecured debts. Also get your paycheck stubs and records of other income. Lastly, prepare a list of your monthly expenditures, for example utility bills, housing expenses, conveyance bills and other monthly expenses. You would require these items for the purpose of formulating a debt management plan.

Find a trustworthy consumer credit counseling agency in your neighborhood. Make an appointment with them and you must not forget to carry the records you have collected. The consumer credit counseling agency would help you make a practical evaluation of your finances and would communicate with your creditors on your behalf to bargain reduced interest rates, relinquishment of fees and possibly extension of your repayment term to pay down your debts. In doing this, they would assess your repayment capacity. As soon as your creditors have accepted the debt management plan, the consumer credit counseling agency would process your payments. Some agencies charge a nominal monthly fee, which is optional most of the time.

You just need to make one monthly payment regularly to your consumer credit counseling agency. Subsequently, the agency would allocate the payment among your creditors in line with the debt management program.

Low Volume Of the Holiday Week, As Usual, Is Not Likely To Provide The Needed Breakout

2009-12-23T18:29:00.000-08:00

Despite some downward, selling pressures, the major indices main support and resistance have once again held. Currently, the overall bullish trend of the market persists; however, there is a range pattern forming and the upward momentum has diminished significantly in the last month Some of the technical indicators have weakened, but as long as support holds, they are not very important.

On the up side, the S&P 500 resistance in the 1155 - 1160 area remains in tact, resulting in a tight trading range. For four straight days [recently], the S&P 500 ($SPX) opened above 1110 and traded higher, but each day selling pushed the closing back below 1110, it has just recently managed to close above 1110 but the low volume suggests a false breakout. First support for the S&P 500 is now at 1110. Resistance for the DOW Jones Industrial Average remains at 10,550 and there is first support at 10,437 and then the next major support level at 10,280/290. It would take a daily close outside of these levels to have meaningful significance. Also, both of these indices are forming a bearish (inclining wedge) pattern.

Market tops are usually marked by weakening breadth. Numerous breadth oscillators have shown much weakness over the last month. That weakening breadth, combined with a bearish pattern and not being able to break above resistance are certainly all negative signs.

Equity-only put-call ratios have been unreliable ever since heavy hedging activity began last summer. That activity seems to be abating now, so we are tentatively looking to use the equity-only ratios as reliable market indicators again. These ratios have also recently generated bearish signals.

Volatility indices ($VIX and $VXO) continue to decline, and that is generally bullish for stocks. $VIX would have to close above 25 to potentially change its chart to bearish. However, these volatility measures are at historically low, or below average levels, suggesting it may be time for them to spike up with an increase in volatility, which would then lead to an increase in risk aversion and a market decline.

Meanwhile, the $VIX futures continue to trade with large premiums. The January premium is 3.70 and February is a relatively large 5.50. These large premiums indicate an overbought market, but Sell signals wouldn’t be generated until the premium peaks and falls below 1.00 or so. Also, other indicators of market strength such as RSI, Stochastics, MACD, etc.. all indicate the market is overbought, and they are starting to turn negative which would produce sell signals as well.

The term structure of the $VIX futures continues to slope steeply upwards, which is another indication of a bullish but overbought condition. This has persisted to some extent since March. A term structure intermediate-term Sell signal would occur only if the structure began to slope downwards.

In summary, both bulls and bears are in a stuck, confused position at the moment. It will remain this way until a breakout of the above mentioned support or resistances occurs. Once the breakout occurs it will be a very large, capitulation move for the markets. Due to our analysis, this breakout we believe is most likely to be to the downside for the markets. We suggest you either allocate your investments for a rise in volatility, or since we are generally bearish at the moment, begin decreasing your exposure to equities. If you have a shorter time frame in mind you could buy or sell the major markets on a breakout of the two above levels, or trade the range between the two levels, this however can be complex so we suggest you do your due diligence before trading short-term. Just call us at 262-939-8885 and we can help you with any questions you may have about how to be prepared. Have a very Merry Christmas, and we will post more "Seedlings For Your Healthiest Money Tree" at the beginning of next week.

Technical Outlook For Gold - Daily

2009-12-18T19:32:00.000-08:00

Gold's fall from 1227.5 has resumed and the precious metal has broke 1110.2 and reached as low as 1097.7. Intraday technical analysis suggests more downside, with the next target near the 50% retracement of 931.3 to 1227.5 at 1079.40 . On the upside, there is 1142.9 resistance, and if this is broken then a short term bottom may be formed and bring stronger recovery towards testing the highs.

In the bigger picture, rise from 681 has good possibility of developing into a of five wave sequence (popular pattern for technical analysis , Elliot Wave) with first wave completed at 1007.7, second wave triangle consolidation completed at 931.3. Rise from 931.3 is treated as the third wave and has possibly completed at 1227.5 after missing 100% projection of 681 to 1007.7 from 931.3 at 1258.

A deeper pull back from the current levels will test the 1026.9 - 1072 support zone (should provide a good medium-term buying opportunity for a bounce off support and resumption of the uptrend for fifth wave completion), or even further to retest 1000 psychological level. But downside should be contained above 931.3 support and bring up trend resumption. If this is indeed an elliot wave pattern for gold then gold prices shall not fall below the 1,010 support mentioned above (end of first wave) before reaching a new high for the fifth wave, which is currently projected to reach the 1,250 - 1,300 level. Daily indicators have yet to show significant enough divergence to suggest a trend change, and there is multitudes of support coming in slightly below Golds current levels, with these two factors in mind Gold may soon provide a nice buying opportunity for investors of all time frames.

Comex Gold - 4 Hours Chart

Comex Gold - Daily Chart

Pivotal Period For The Dollar

2009-12-17T20:56:00.000-08:00

The movements of the US dollar index and the dollar against most major currencies over the past few days has caught the market’s attention. For the first time since early March when technical analysis of the dollar index indicated a top, daily technical analysis has now turned moderately in favor of the dollar, suggesting at least a short-term low has been made and short term dollar strength to come.

How significant is this low the dollar recently hit?

Figure 1

The dollar index marked a high in early March at 89.71 and hit a low nearly two weeks ago of 74.27. On these lows, the selling (for a change) was not as heavy as before with the on-balance volume (OBV) acting much stronger and forming a bullish divergence, line e. The initial OBV resistance, line d, was overcome and further new highs would be quite positive. A move in the OBV above the longer-term resistance at line c would be even more impressive. The daily downtrend at 76.70 should be tested this week, and a test of the 23.6% resistance at 78 is likely over the next week or so. Normally, I would expect the rally to stall in this area, but with the massive short dollar position, this may not happen. The first major upside target is the 38.2% resistance at the 80 level.

Figure 2

The weekly chart of the EUR/USD shows that the euro peaked at near 1.5142 nearly three weeks ago, falling short of the major 78.6% resistance level in the 1.5225 - 5275 area. The euro (through December 8) is testing the weekly uptrend, line a, and chart support in the 1.4630 area. There is additional support in the 1.4500 area. The weekly RSI formed a short-term negative divergence at the recent highs, point 2, and is likely to break its uptrend, line b, this week. At a major top, we would normally expect to see a divergence that was formed over a longer time period, but if one assumes that this whole rally was just a rebound of the 2008 decline, then it could end with such a short-term divergence. Typically, we would expect to see another one to three weeks on the downside and then a rally that would take the RSI back to its declining WMA. This could be an optimum dollar selling opportunity.

Figure 3

The daily analysis of the euro futures nicely supports the weekly analysis as the euro futures made marginal new highs last week, point 2, but the OBV was much weaker. This indicates that there were significantly fewer buyers than there were on the prior highs (point 1). The break of the uptrend in the OBV, line c, confirms the negative divergence as well as the break of the uptrend in prices, line b. I would not be surprised to see a strong rebound in the euro if support in the 1.4300-4350 area is tested (EUR/USD is currently rebounding strongly from just hitting 1.4305 a few hours ago). First resistance is now in the 1.4650-1.4750 area.

The next few months may be a paradigm shift for the dollar sentiment. With technical and fundamental factors conflicting, the real catalyst should be when the Fed becomes more hawkish (decrease money supply, raising rates), or when the major market indices break significant support levels. While nearly everyone is looking for the Fed to raise rates before the dollar can mark a new multi-year bottom, the technical outlook suggests that with the current position of the federal reserve policy the dollar has a good chance of hitting that new multi-year low below 70.5 on the dollar index before rates are raised in mid-2010.

Are The Grain Markets Looking A Little Grainy?

2009-12-16T18:29:00.000-08:00

Yesterday, March corn futures closed down 2 cents at $4.065, and this closing price was very near the session low. Losses were limited by a fresh export sale of U.S. corn yesterday. However, bulls appear to be getting tired after the recent rally. Prices are trapped in the middle of a choppy trading range at higher price levels, bound by solid support at the November low of $3.72 1/2 and by solid resistance at the November high of $4.25. Bulls still have the overall short-term technical advantage. The next upside price objective is to push and close prices above strong technical resistance at the November high of $4.25 a bushel. The next downside price objective for the bears is to push and close prices below solid technical support at $3.90 a bushel. First resistance for March corn is seen at this week's high of $4.10 and then at $4.15. First support is seen at yesterday's low of $4.05 and then at $4.00.

January soybeans closed down 1/4 cent at $10.54 3/4 a bushel yesterday, and prices closed near the session low. Prices could not manage to gain upward momentum despite a fresh announcement of a large sale of U.S. soybeans to China. This suggests the bulls have become exhausted as prices reach the upper boundary of the recent trading range. Bulls do still have the overall near-term technical advantage. The next upside technical objective for the bulls is pushing and closing January prices above solid technical resistance at the December high of $10.78 1/2 a bushel. The next downside price objective for the bears is pushing and closing prices below solid technical support at the December low of $10.19 a bushel. First resistance for January soybeans is seen at yesterday's high of $10.68 1/2 and then at $10.78 1/2. First support is seen at yesterday's low of $10.49 1/2 and then at $10.40.

March soybean meal closed steady at $312.60 yesterday. Prices closed near mid-range yesterday and also hit a fresh four-month high. Bulls have the overall near-term technical advantage. Prices are in a nine-week-old uptrend on the daily chart. The next upside price objective is a close above solid technical resistance at $325.00. The next downside price objective for the bears is below solid technical support at last week's low of $298.90. First short term resistance comes in at $314.80 and then at yesterday's high of $316.60. First support is seen at yesterday's low of $310.10 and then at $307.50.

March bean oil closed up 1 point at 40.05 cents yesterday. Prices closed near mid-range. Bean oil bulls still have the overall near-term technical advantage, but are fading a bit. The next upside price objective for the bean oil bulls is pushing and closing prices above solid technical resistance at last week's high of 41.44 cents. Bean oil bears' next downside technical price objective is pushing and closing prices below solid technical support at 39.00 cents. First resistance is seen at yesterday's high of 40.40 cents and then at 40.75 cents. First support is seen at yesterday's low of 39.81 cents and then at this week's low of 39.61 cents.

March Chicago SRW wheat closed down 6 3/4 cents at $5.36 3/4 yesterday. Prices closed near the session low. Bears still have the overall near-term technical advantage. The next downside price objective for the bears is pushing and closing prices below solid technical support at the November low of $5.07 1/2. Bulls' next upside price objective is to push and close March futures prices above solid technical resistance at $5.70 a bushel. First resistance is seen at this week's high of $5.48 and then at $5.52. First support lies at last week's low of $5.30 and then at $5.25.

March K.C. HRW wheat closed down 7 1/2 cents at $5.26 1/2 yesterday. Prices closed near the session low. Bears still have the overall near-term technical advantage. Bulls' next upside price objective is pushing prices above solid technical resistance at $5.60. The bears' next downside objective is pushing and closing prices below solid technical support at the November low of $5.16. First resistance is seen at yesterday's high of $5.31 1/2 and then at this week's high of $5.39. First support is seen at yesterday's low of $5.26 and then at last week's low of $5.22 1/2.

March oats closed up 1 1/4 cent at $2.60 yesterday. Prices closed near the session high. Bears still have the overall near-term technical advantage. Bulls' next upside price objective is pushing and closing prices above solid technical resistance at $2.65. Bears' next downside price objective is pushing and closing prices below solid technical support at $2.50. First resistance lies at this week's high of $2.62 and then at $2.65. First support is seen at $2.57 1/2 and then at yesterday's low of $2.56 1/2.

Investing With The Big Picture

2009-12-14T17:56:00.000-08:00

Multiple Timeframe Confirmation, or MTC is nothing new, however it is a method of investing that is gaining more attention with traders and investors of all types. MTC is the art of finding investment opportunities characterized by bullish (or bearish) chart dynamics in timeframes other than the primary one the investor/trader is using. For example, if I am trading in the hourly chart I might look at the daily and 5-minute chart to see what the market looks like in both the longer and intraday timeframes.

Using MTC, we identify a trading signal in the dominant timeframe we are investing/trading, and then confirm it across the other timeframes. For example, if you are an end of day trader using Daily Charts. You might be running a simple MACD indicator system to look for reversals. When you see a trading signal, you should look at the weekly chart to see if there is a bullish pattern in that timeframe. Assuming there is, you would then look at the 60 minute chart to see what happened in the last 4-5 hours of trading. If there is bullish sentiment in that timeframe as well, you would then enter the trade.

When examining a LONGER timeframe, we are looking for longer term support and resistance and (optionally) bullish indicators in that timeframe. The idea here is to determine whether we are near a significant level in the longer term chart that might affect our trade, since the psychology of the market could easily be affected by, say, a support level going back as far as even a few years. If Stock ABC has hit $20 four times in the last year and rallied, you probably don’t want to be shorting it at $20.50. Similarly, if the stock is breaking through $30 in the daily chart but the weekly or monthly shows all-time resistance at $31, you probably want to wait until $31 has been surpassed before buying it.

When we examine a SHORTER timeframe, we are looking for shorter term chart patterns – especially Consolidations, Saucers, and Gaps. This is the most important aspect of MTC because confirming that you have a bullish chart pattern in (say) the 60 minute chart means your end of day trade has that much more chance of rallying at the open, giving it that much more clearance from your entry.

Chart patterns provide one level of MTC confirmation, but you can also use indicators. Whether you are trading /investing with moving averages, RSI, Stochastics, MACD or any other basic movement indicator, seeing the values above and below your trading timeframe provides an extra level of confirmation. For example, a rising MACD Histogram indicates strength. If you plot this indicator in multiple timeframes, and confirm that it is rising in each of them, then you have further increased the chance of an upside move.

Three charts are presented below – a daily, weekly, and 60 minute chart for AAPL, depicting what happened on November 6 and 9.

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Weekly: In the weekly chart, we are turning up off a Cycle Low above our averages.

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Daily: On this “signal” day in the Daily Chart, MACD Histogram is increasing, there is a gap, and the market is moving up through the moving averages.

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60 Minutes: On November 6, the markets were turning up off our moving averages. We also have a consolidation formed over the past 2 sessions. Consolidations are continuation patterns so this pattern indicates the probability of a continued up-move.

All three timeframes showed bullish sentiment. AAPL rose 5% to the end of November. MTC works because the participants in each timeframe have different trading horizons. In the daily chart, you primarily have short term investors with holding time horizons of 1-3 weeks. In the weekly chart, longer term investors are working to establish investments lasting months. Dropping to the 60 minute chart, you have the trading market acting on the stock during the session, creating a technical psychology that fuels movement. When all three participants (short, medium, and long term) are acting on a stock to drive it up, the chance of continued rally in all timeframes is increased.

Summary

Multiple Timeframe Confirmation is a powerful tool for confirming direction and trend before entering any trade/investment. Regardless of the platform you use, applying the principle of MTC can dramatically improve your results. If you display charts in several timeframes at the same time and confirm across them, you will definitely gain an edge in your trading.