Feb 5, 2019 | educational newsletters, jay kaeppel
In this piece I wrote about a strong seasonal tendency in corn based on the planting cycle. Turns out soybeans are in the same boat. This can be a good thing for traders who are, a) willing to speculate, b) not dumb enough to the bet the ranch.
Figure 1 displays the annual seasonal trend for soybeans (from www.sentimentrader.com). Just as with corn, the months of February through April tend to see positive results. Please note the use of the word “tend” and the lack of the words “sure” or “thing”.
Figure 2 displays a monthly chart for soybeans going back 4 decades.
Here are the two things to note (using some pretty technical terms):
*Soybeans (like most commodities) spend a lot of time “churning”, “grinding”, “consolidating” and generally going “nowhere”
*HOWEVER, “when beans go they really go!” (hopefully that wasn’t “too technical”)
*The primary thing to remember is that when soybeans get going to the upside, typically the best thing to do is to banish the word from “overbought” from your trading lexicon. See Figure 3.
Figure 3 – Big moves in Beans (Courtesy ProfitSource by HUBB)
Now let’s focus on the months of February, March and April. Figure 4 displays the hypothetical $ growth (no slippage or commissions) from holding long a 1-lot of soybean futures during February, March and April every year starting in 1976.
Figure 4 – Long 1 soybean futures contract during Feb-Mar-Apr every year since 1976
Some things to note regarding Feb-Apr in soybeans:
*Average $ gain = +$3,808
*Average $ loss = (-$1,788)
*Largest loss = (-$3,775)
In sum, a winners to losers ratio of 3.3 (or 76% winners), an average win to average loss ratio of 2.13-to-1
Bottom line: these are great numbers for traders BUT they entail the assumption of significant risk (2017 saw a loss of over -$3,400)
An Alternative Way to Play
Ticker SOYB is the Teucrium ETF designed to track the price of soybeans. SOYB allows traders to buy soybeans just as they would buy shares of stock. Just remember that you don’t get the same leverage buying SOYB as you would buying a futures contract.
Figure 5 displays a monthly chart for SOYB and Figure 6 displays a daily chart. Note the significant resistance level at around $16.96 a share. If SOYB takes out that level sooner than later it might be a bullish sign.
Soybeans have been beaten down a bit over the last several years. If (and “yes”, that is a big “If”) beans are going to make a move higher, history suggests that the Feb through April period is a likely time for that to happen.
Am I “recommending” or even “merely suggesting” that you should buy soybean futures or ticker SOYB? Not at all. I adhere to that old media adage of “We (I) report, you decide.”
Which is better I think than the current motto of major media which appears to be “We decide, then we report our decision.”
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Jan 6, 2019 | educational newsletters, ETFs, jay kaeppel, sector funds
Crude oil and pretty much the entire energy sector has been crushed in recent months. This type of action sometimes causes investors to wonder if a buying opportunity may be forming.
The answer may well be, “Yes, but not just yet.”
Historically the energy sector shows strength during the February into May period. This is especially true if the November through January period is negative. Let’s take a closer look.
If Fidelity Select Energy (ticker FSENX) shows a loss during November through January then we will buy and hold FSENX from the end of January through the end of May. The cumulative growth of $1,000 appears in Figure 1 and the yearly results in Figure 2.
Figure 1 – Growth of $1,000 invested in FSENX ONLY during Feb-May ONLY IF Nov-Jan shows a loss
Figure 2 – % + (-) from holding FSENX during Feb-May ONLY IF Nov-Jan shows a loss
Figure 3 displays ticker XLE (an energy ETF that tracks loosely with FSENX). As you can see, at the moment the Nov-Jan return is down roughly -15%.
Figure 3 – Ticker XLE (Courtesy TradingExpert)
All of this suggests remaining patient and not trying to pick a bottom in the fickle energy sector. If, however, the energy sector shows a 3-month loss at the end of January, history suggests a buying opportunity may then be at end.
Paraphrasing here – “Patience, ah, people, patience”.
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Dec 6, 2018 | Charts, EDS, EDS code, educational newsletters, indicators, jay kaeppel
Trend-following is essentially a “tried and true’ approach to investing. But overbought/oversold (i.e., attempting to buy low/sell high) – that’s where the “excitement” is. Of course, when it comes to trading and investing, “excitement” can be highly overrated. Nevertheless, in this piece I want to talk about a relatively obscure indicator that may be useful in identifying vastly oversold situations.
EDITORS NOTE: The WinWay EDS file for Jay Kaeppel’s indicator is available to download here
Part of the reason this indicator is obscure is because I think I “invented” it – but only by mashing together an indicator from Larry Williams and an indicator from Welles Wilder. The first part is the standard Welles Wilder 14-day Relative Strength Index, more commonly referred to as “RSI”.
The 2nd part of VixRSI14 is an indicator created by famed trader Larry Williams which he dubbed “VixFix”. This indicator is an effort to create a “Vix Index-like” indicator for any security.
WinWay TradingExpert code for these indicators appears at the end of the article.
*For the record, VixRSI14 is calculated by taking a 3-day exponential average of VixFix and dividing that by a 3-day exponential average of RSI14 (are we having fun yet?). Please see code at the end of the article.
*I prefer to use VixRSI14 using weekly data rather than daily data
*(Unfortunately) There are no “magic numbers” that indicate that a completely risk-free, you can’t lose, just buy now and watch the money roll in” buying opportunity is at hand (Disclaimer: If there was, I would probably just keep it to myself and not bother writing the article – sorry, it’s just my nature). That being said, a decent “rule of thumb” is to look for a reading above 3.5 followed by a downside reversal.
(Click any chart below to enlarge)
With those thoughts in mind, Figure 1 displays a weekly chart of Wynn Resorts (WYNN) with the two indicators plotted separately below the bar chart.
Figure 1 – WYNN with William’s VixFix and Wilder’s RSI 14-day (Courtesy WinWay TradingExpert)
Note that as price declines, VixFix tends to rise and RSI14 tends to fall. VIXRSI14 essentially identifies “extremes” in the difference between these two. Figure 2 displays WYNN with VixRSI14 plotted below the bar chart.
More “examples” appear in Figures 3 through 8 below.
As always, I merely present “ideas” here at JOTM. So, do not assume from the charts above that you have found the “keys to the kingdom”. But if used in conjunction with other confirming indicators – and remembering to employ some sort of risk control for those instances when a stock price decline fails to arrest itself even after VixRSI4 peaks above 3.5 – VixRSI14 may hold some value.
Indicator Code
EDITORS NOTE: The WinWay EDS file for Jay Kaeppel’s indicator is available to download here
Below is the code for VixFix, RSI14 and VixRSI14 from AIQ Expert Design Studio.
!#######################################
hivalclose is hival([close],22).
vixfix is (((hivalclose-[low])/hivalclose)*100)+50.
!#######################################
!#######################################
U14 is [close]-val([close],1).
D14 is val([close],1)-[close].
AvgU14 is ExpAvg(iff(U14>0,U14,0),days14).
AvgD14 is ExpAvg(iff(D14>=0,D14,0),days14).
RSI14 is 100-(100/(1+(AvgU14/AvgD14))).
!#######################################
!#######################################
VixRSI14 is expavg(vixfix,3)/expavg(RSI14,3).
!#######################################
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Oct 18, 2018 | EDS, educational newsletters, ETFs, indexes, indicators, jay kaeppel, market timing
So, the big question on every investor’s mind is “What Comes Next?” Since this is not an advisory service (and given the fact that I am not too good at predicting the future anyway) I have avoided commenting on “the state of the markets” lately. That being said, I do have a few “thoughts”:
*The major averages (as of this exact moment) are still mostly above their longer-term moving averages (200-day, 10-month, 40-week, and so on and so forth). So, on a trend-following basis the trend is still “up”.
*We are in the most favorable 15 months of the 48-month election cycle (though off to a pretty awful start obviously) which beings Oct.1 of the mid-term year and ends Dec. 31st of the pre-election year.
*Investors should be prepared for some volatility as bottoms following sharp drops usually take at least a little while to form and typically are choppy affairs. One day the market is up big and everyone breathes a sigh of relief and then the next day the market tanks. And so on and so forth.
At the outset let me state that there are no “magical” indicators. Still, there are some that typically are pretty useful. One that I follow I refer to as Nasdaq HiLoMA. It works as follows:
A = Nasdaq daily new highs
B = Nasdaq daily new lows
D = 10-day moving average of C
C can range from 0% to 100%. D is simply a 10-day average of C.
Interpretation: When Nasdaq HiLoMA drops below 20 the market is “oversold”.
Note that the sentence above says “the market is oversold” and NOT “BUY NOW AGGRESSIVELY WITH EVERY PENNY YOU HAVE.” This is an important distinction because – like most indicators – while this one may often give useful signals, it will occasionally give a completely false signal (i.e., the market will continue to decline significantly).
A couple of “finer points”:
*Look for the indicator to bottom out before considering it to be “bullish”.
*A rise back above 20 is often a sign that the decline is over (but, importantly, not always). Sometimes there may be another retest of recent lows and sometimes a bear market just re-exerts itself)
*If the 200-day moving average for the Dow or S&P 500 is currently trending lower be careful about using these signals. Signals are typically more useful if the 200-day moving average for these indexes is rising or at least drifting sideways rather than clearly trending lower (ala 2008).
Figures 2 through 8 displays the S&P 500 Index with the Nasdaq HiLoMA indicator. Click to enlarge any chart.
The stock market is in a favorable seasonal period and is oversold. As long as the former remains true, react accordingly (with proper risk controls in place of course).
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Oct 5, 2018 | educational newsletters, ETFs, indexes, jay kaeppel, market timing, sector funds
One of the benefits of being an avowed trend-follower is that it can allow you to avoid a lot of the “angst” that many investors suffer with each new twist and turn in the economic/financial/political/price of tea in China arena. Let’s face it, if you scan the internet, watch cable news or read the financial press you will always have at least – roughly – 10,000 “things” that you could be worried about that will kick the legs out from whatever bullish thing might be happening at the moment.
I have a friend (no, seriously) and his comment recently was “The next person that mentions the Hindenburg Omen gets punched in the face”. The bottom line: someone is always crying “Wolf”, and living in perpetual fear is – let’s be honest – kind of a crappy way to go through life. Which is why I typically advocate focusing on the major trends and not sweating all the small stuff along the way.
Yes, things can go wrong and yes it would be nice to have at least some sort of a heads up in advance. So, in an effort to not be completely ignorant of the goings on around me I do have a few “things” I follow in hopes of getting some “early warning” if trouble is brewing. I call them my 4 bellwethers.
The main thing I look for is “divergence” between the action for the major stock market indexes and the action of these bellwethers. Even the existence of divergences does NOT guarantee trouble. But more often than not, major market tops are presaged by some “signs of trouble”. So, let’s take a look.
Figure 1 displays the Dow, Nasdaq 100, S&P 500 and Russell 2000 indexes. As you can see, they are all in up trends, well above their respective 200-day moving averages and 3 of the 4 are at or near all-time highs. In other words, from a solely trend-following perspective, “Thing are swell, things are great.”
(click to enlarge)
Figure 1 – Four major indexes all in bullish trends (Courtesy WinWayCharts TradingExpert)
Figure 2 displays my 4 bellwethers – they are:
Ticker SMH: an ETF that tracks the semiconductor sector. The world runs on technology and technology runs on semiconductors.
Dow Transportation Index: Whether the Transports confirm or diverge from the Dow Industrials has long been used as a gauge of market health by investors.
Ticker ZIV: An ETF that is designed to track the inverse of the VIX Index. Long story, but bottom line, it should go up when the market goes up and vice versa. Any deviation from that standard can be a warning sign.
Ticker BID: Sotheby’s Holdings which run high-end auctions. Bottom line, if rich people are comfortable buying expensive stuff that is a good sign for the economy (and should be reflected in a rising trend in BID) and if rich people are NOT comfortable buying expensive stuff, well, vice versa.
As you can see, the Bellwethers are mostly not confirming the major average at the moment. This is not a reason to panic or fell angst. It is simply something to keep an eye on. The longer these divergences continue the more troublesome, so let’s focus on a couple of key things to watch to decide if maybe you should go ahead and start feeling angst.
As you can see in Figure 3, double-tops in the Dow Transports have in the past signaled trouble for the overall stock market.
The Good News and Bad News for the Transport Index is reflected in the daily chart shown in Figure 4. The Good News is that the Transports recently made a new all-time high. The Bad News is that price has subsequently fallen back below the important support/resistance level marked in Figure 4.
Good = Dow Transports above 11,424
Bad = Dow Transports below 11,424
As you can see in Figure 5, weakness in the overall market averages is often presaged well in advance by a major breakdown in the price of BID.
As you can see in Figure 6, BID recently tanked 25% before rebounding slightly. Is this a “Look Out Below” warning sign for the stock market? Dunno, but gonna keep a close eye on BID to see if it rebounds…or falls further.
The major market averages are (mostly) rallying to new highs while Jay’s 4 Market Bellwethers are, well, it’s too soon to say exactly what they are. But for the moment at least they are mostly not confirming the new highs in the major averages. Please try to remain calm. The proper response is Not fell angst and doubt, but rather to simply keep an eye on how things progress from here. If the Bellwethers start to move higher then “the crisis will have passed.” If not, then it will be very important to keep an eye open for – and to take seriously – signs of weakness in the major averages.
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Sep 25, 2018 | educational newsletters, ETFs, indexes, jay kaeppel, market timing
Let’s open with Jay’s Trading Maxim #7.
Jay’s Trading Maxim #7: Being able to identify the trend today is worth more than 1,000 predictions of what the trend will be in the future.
Yes trend-following is boring. And no, trend-following never does get you in near the bottom nor out at the top. But the reality is that if you remain long when the trend appears to be up (for our purposes here let’s define this roughly as the majority of major market averages holding above their long-term moving averages) and play defense (i.e., raise cash, hedge, etc.) when the trend appears to be down (i.e., the majority of major market averages are below their long-term moving averages), chances are you will do pretty well for yourself. And you may find yourself sleeping pretty well at night as well along the way.
To put it more succinctly:
*THE FOREST = Long-term trend
*THE TREES = All the crap that everyone tells you “may” affect the long-term trend at some point in the future
Human nature is a tricky thing. While we should clearly be focused on THE FOREST the reality is that most investors focus that majority of their attention on all those pesky trees. Part of the reason for this is that some trees can offer clues. It’s a question of identifying a few “key trees” and then ignoring the rest of the noise.
With the Dow Industrials rallying to a new high virtually all the major averages have now reached a new high at least within the last month. And as you can see in Figure 1 all are well above their respective 200-day moving average. Long story short the trend is “UP”.
(click to enlarge)
Figure 1 – U.S. Major Market Indexes in Uptrends (Courtesy WinWayCharts TradingExpert)
As strong as the market has been of late it should be noted that we are about to enter the most favorable seasonal portion of the 48-month election cycle. This period begins at the close of September 2018 and extends through the end of December 2019.
Figure 2 displays the growth of $1,000 invested in the Dow Industrials only during this 15-month period every 4 years. Figure 3 displays the actual % +(-) for each of these periods. Note that since 1934-35, the Dow has showed a gain 20 out of 21 times during this period.
Figure 2 – Growth of $1,000 invested in Dow Industrials ONLY during 15 bullish months (mid-term through pre-election year) within 48-month election cycle.
| Start Date |
End Date |
Dow % +(-) |
| 9/30/1934 |
12/31/1935 |
+55.6% |
| 9/30/1938 |
12/31/1939 |
+6.2% |
| 9/30/1942 |
12/31/1943 |
+24.5% |
| 9/30/1946 |
12/31/1947 |
+5.1% |
| 9/30/1950 |
12/31/1951 |
+18.9% |
| 9/30/1954 |
12/31/1955 |
+35.5% |
| 9/30/1958 |
12/31/1959 |
+27.7% |
| 9/30/1962 |
12/31/1963 |
+31.8% |
| 9/30/1966 |
12/31/1967 |
+16.9% |
| 9/30/1970 |
12/31/1971 |
+17.0% |
| 9/30/1974 |
12/31/1975 |
+40.2% |
| 9/30/1978 |
12/31/1979 |
(-3.1%) |
| 9/30/1982 |
12/31/1983 |
+40.4% |
| 9/30/1986 |
12/31/1987 |
+9.7% |
| 9/30/1990 |
12/31/1991 |
+29.2% |
| 9/30/1994 |
12/31/1995 |
+33.1% |
| 9/30/1998 |
12/31/1999 |
+46.6% |
| 9/30/2002 |
12/31/2003 |
+37.7% |
| 9/30/2006 |
12/31/2007 |
+13.6% |
| 9/30/2010 |
12/31/2011 |
+13.0% |
| 9/30/2014 |
12/31/2015 |
+2.2% |
Figure 3 – 15 bullish months (mid-term through pre-election year) within 48-month election cycle
Now What? The Worrisome Trees
While the major averages are setting records a lot of other “things” are not. My own cluster of “market bellwethers” appear in Figure 4. Among them the Dow Transportation Index is the only one remotely close to a new high, having broken out to the upside last week. In the meantime, the semiconductors (ticker SMH), the inverse VIX index ETF (ticker ZIV) and Sotheby’s (ticker BID) continue to meander/flounder. This is by no means a “run for the hills” signal. But the point is that at some point I would like to see some confirmation from these tickers that often (though obviously not always) presage trouble in the stock market when they fail to confirm bullish action in the major averages.
(click to enlarge)
Figure 4 – Jay’s 4 Bellwethers (SMH/TRAN/ZIV/BID) (Courtesy WinWayCharts TradingExpert)
Another source of potential concern is the action of, well, the rest of the darn World. Figure 5 displays my own regional indexes – Americas, Europe, Asia/Pacific and Middle East. They all look awful.
(click to enlarge)
Figure 5 – 4 World Regional Indexes (Courtesy WinWayCharts TradingExpert)
Now the big question is “will the rest of the world’s stock markets start acting better, or will the U.S. market start acting worse?” Sadly, I can’t answer that question. The key point I do want to make though is that this dichotomy of performance – i.e., U.S market soaring, rest of the world sinking – is unlikely to be sustainable for very long.
It is hard to envision the market relentlessly higher with no serious corrections over the next 15 months. And “yes”, those bellwether and world region indexes trees are “troublesome”.
Still the trend at the moment is inarguably “Up” and we about to enter one of the most seasonally favorable periods for the stock market.
1) Decide now what defensive actions you will take if the market does start to breakdown
2) Resolve to actually take those actions if the need arises
3) Enjoy the ride as long as it lasts.
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
