Jul 28, 2016 | educational newsletters, jay kaeppel, seasonal
We are entering an “interesting” time of year for investors (Unfortunately, that’s “Interesting” as in the ancient Chinese curse stating “May you live in interesting times”).
Now I personally I have no idea if the stock market is going to break out to the upside and rally to further new highs or if this latest lull will be followed by a painful reversal of fortune. I am willing to play the long side as long as things are holding up/moving in the right direction. But investors should be aware that the August/September timeframe is the “Danger Zone” for the stock market historically.
August/September Historically
Figure 1 speaks for itself. The chart displays the growth of $1000 invested in the Dow Jones Industrials Average only during the months of August and September every year starting in1934.
Figure 1 – Growth of $1,000 invested in Dow Jones Industrials Average (using price data only) ONLY during August and September; 12/31/1933-present
Two key takeaways:
*The net result has been a loss of -53% or the past 82 year. Not exactly the kind of returns most of us are looking for.
HOWEVER
*Despite the negative net results, the fact is that the Aug/Sep period has showed a gain more often (45 times) than not (37 times).
So while caution appears to be in order, no one should assume that the next two months are doomed to show a loss.
Stocks versus Bonds
Figure 2 compares the performance of:
Ticker VFINX – Vanguard S&P 500 Index fund
*Ticker VFIIX – Vanguard Mortgage Bond Fund
(*VFIIX is used as a proxy for intermediate-term treasuries as it has a high correlation to IT treasuries and a longer data history. Any short-to-intermediate term treasury fund or ETF would likely produce similar results)
The test starts in 1980 (when VFIIX started trading) and shows the total return for buying and holding each fund ONLY during the months of August and September each year since.
Figure 2 – Growth of $1,000 invested in VFINX (stocks; blue line) versus VFIIX (bonds; red line); August 1980 to present
Summary
So what will it be this year? A breakout to new highs? Or something much worse? I wish I could tell you the answer. But at least now you have some information to help guide your “speculative” versus “conservative” instincts in the months ahead.
Jay Kaeppel
Jul 26, 2016 | chart patterns, EDS, stock market
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Jul 13, 2016 | educational newsletters, fundamental analysis
Dividends for U.S. companies continue to be under pressure as fewer issues are increasing payments and those issues that do increase do so at a lower rate. Within the S&P 500®, the average dividend increase for Q2 2016 was +10.56%, down from +10.62% in Q1 2016 and +13.08% for all of 2015. The pace of dividend cuts continues to rise, as Q2 saw a substantial increase in cuts from mid and small-cap energy issues, with the overall aggregate dollar 12-month cuts rising 157% over the prior 12-month period. Yet, the over-all dividend increases continue to outweigh the decreases. So the outlook remains positive.
Energy and Materials issues are expected to remain under pressure for 2016, potentially resulting in disappointing announcements for earnings, capital investments, buybacks and dividends. Assuming dividend policies remain unchanged, the U.S. equity market in 2016 is positioned to set another record in payments, especially in the S&P 500®, but the increase is seen as being in the mid-single digit range, not the double-digits seen over the past few years.
The good news for dividends is that, while things are difficult, the majority of issues continue to increase and have the resources to do so for the near future.
Large, Mid, Small Caps
Within the S&P 500®, 418 issues, or 82.8% currently pay a dividend. All 30 members of the Dow Jones Industrial Average® pay a dividend as well.
Within the S&P Mid Cap 400®, 69.3% of the issues within pay a cash dividend, a decrease from 70.3% in Q1 2016. Within the S&P Small Cap 600®, 51.4% of the issues pay a dividend, which is unchanged from Q1 2016.
Yields continued to vary among the various market indices.
Large-Caps at 2.17% (no change from the 2.17% in Q1 2016).
Mid-Caps at 1.68% (1.69% in Q1 2016).
Small-Caps at 1.38% (1.47% in Q1 2016).
The yields across dividend paying market-size classifications continue to be compatible, with large-caps coming in at 2.54% (the same as Q1 2016), mid-caps at 2.37% (2.36% in Q1 2016) and small-caps at 2.47% (2.50% in Q1 2016).
Contributed by Top Stock Analyzer
Stocks which received upward revisions to current year consensus earnings estimates and show a lower uncertainty of earnings tend to outperform over time…..LEARN MORE
Jul 11, 2016 | educational newsletters, market timing, one minute stock
The Dow rallied for 251 points on Friday, closing at 18,147. It was up 197 points for the week. The NASDAQ finished up 80 points on Friday and up 94 points for the week.
After the BLS said that 287K new jobs were created in June, the market shot up and tested the April 20 high. The Dow actually came within one point of making a new high before pulling back from overbought conditions.
This week I’m posting three charts that show where the Dow, Gold, and the Dollar are in their current patterns.
The first chart of the Dow shows that once again, the 2-period RSI Wilder is overbought with No Trend in place. So the Dow should start to pull back early next week.
Gold and the Dollar are another matter. As you can see from the second chart, GLD continues to remain in a strong uptrend. The VTI is above the 70 level and continues to move higher. GLD closed at 130.52 on Friday and appears to be right on track for a move to the 134+ level.
But the chart of the Dollar shows a fly in the ointment. For the past three days, the VTI on the chart of UUP is showing that it is also starting to enter the Trend Mode. This is a major concern, because it is extremely unusual for the Dollar and Gold to be rising at the same time. The only time this tends to happen is when there is major trouble in the world.
It happens because people are so concerned about their money that they are flocking to safe havens. And it’s not only happening with individual investors, it’s happening with companies too. We’re seeing this in a lot of European countries now where investors are willing to pay the banks money (negative interest) just so they can get their money back at some point in the future. It’s insane!
Prior to Brexit, I warned that this could happen. I said U.S stocks, gold and the Dollar could be perceived as safe havens, and all three could rise post-Brexit. But I don’t believe this condition will last. Something has to give. A strong dollar makes it extremely difficult for most U.S. companies to sell their products abroad. It will impact their earnings. There are no two ways about it. As long as the dollar continues to rise, large cap U.S. stocks will face strong headwinds.
And right now, most U.S. stocks are not cheap. The current P/E ratio for the S&P500 is a whopping 24.61! Compare this to its historic mean of 15.60 and you will quickly see that stocks are severely overvalued. The reason they are being priced so high now is because companies are buying back shares, and investors are being pushed into stocks because most other investments are paying diddly squat. This is a very dangerous situation.
The fact that most companies are buying back their own shares is really something you should think about. Usually the only time a company buys back its own shares is because they believe the stock price is too cheap! The stock price might have been reduced because of a temporary slip in earnings or some unusual one time event. In normal times, a company would not do this. In normal times, a company would use any excess cash it generates to expand. They would buy additional equipment or hire more people. After all, they’re in business to make money. But this is NOT happening now. The reason its not happening now is because companies are worried. They are not buying new equipment or hiring new workers despite the fact that the June Jobs Report was positive. Given May’s horrible report of only 34K new jobs and its subsequent downward revision to 11K, the June report MUST be considered suspect.
So think about this. If a company is worried about its future, doesn’t it seem strange to pay on average, 25 times earnings to buy back its stock? If they were buying back stock at 10-12 tries earnings, I could understand. But at 25 times earnings, buying back shares is not a strange strategy, it’s crazy!
It’s a strategy that can support the price of the stock for a while, but longer term, it’s not something that will lead to actual growth. I also believe it’s a very risky strategy. Share buyback programs and cost cutting measures are temporary accounting tricks. They make the price of a stock seem attractive to unsuspecting investors, especially seniors, who are being forced into the stock market because they need income (dividends). But eventually, if companies are going to keep their share price supported, they will have to show profits produced by real growth. With earnings season about to begin next week, and an overbought market, it should be interesting to watch what what happens as these companies report.
Protect yourself.
That’s what I’m doing,
The Professor
Jul 7, 2016 | earnings, educational newsletters, fundamental analysis, Top Stock analyzer
Have you ever bought a stock you thought had great earnings, only to see it fail miserably?
It is not enough to have a list of great fundamental stocks. You must go deeper into the analysis of each final candidate on the list. But, what other analysis can be done? At Top Stock Analyzer we use our own proprietary tool, we call the the FATI® Score to help us unlock profits.
The FATI® Score is based upon leading investment research studies which show stocks with a lower standard deviation of earnings estimates from the consensus (higher degree of agreement among analysts) the better performance of the stock.
The study concluded stocks with a higher degree of earnings certainty (lower standard deviation of estimates) outperformed stocks with a lower degree of earnings certainty by +8.7% per year over a fifteen-year period. That is a significant performance enhancement. One which cannot be ignored.
With out FATI® Score we fine tune stock selection beyond a list of great fundamentally screened stocks. There is no magic here, nor any guarantees, but face it; investing is hard enough. Why not select stocks which have a high probability of outperforming the markets both long and short?
Each week we generate a report of high scoring stocks both long and short, then feature one stock for an in-depth analysis.
Here’s an excerpt from our May 30, 2016 newsletter and the long stock that the FATI® Score highlighted
Featured Stock – Dycom Industries – DY
Industry – Heavy Construction
Dycom Indiustries is a specialty contracting firm servicing
the telecom and utilities industries. The firm provides engineering, construction and maintenance services. They
have a long list of prominent clients, such as AT&T, Verizon, Comcast and Century Link.
Dycom is experiencing enormous
growth due to the high demand for network and mobile bandwidth. As the bandwidth demand grows, customers need to
expand the capacity of their networks. This demand has created a backlog of over $5.6 billion is contract work
for Dycom. With this years sales growth estimated at over 26% earnings should continue to be outstanding.
As of 7/6/2016 DY was up 6.59%
Here’s an excerpt from our June 6, 2016 newsletter and the long stock that the FATI® Score highlighted
Featured Stock – Copart, Inc. – CPRT
Industry – Auction/Valuation Services
Copart, Inc. provides online auction and related services to
process or sell salvage and marketable vehicles. The buyers and sellers include
insurance companies, banks and financial institutions, car dealerships, fleet
operators, and vehicle rental companies, licensed dealers and of course the
general public as well.
The company’s operations span the globe. Operations are well
established in Canada, Europe, South America and India. With increasing
revenues. declining expenses and global expansion into the Middle East, Copart
has been hitting on all cylinders. So far in 2016 the company has added 4 new
facilities to handle the increase in volume. Two in Colorado and two in Texas.
Earnings revisions are strong and are coming in higher
across quarterly and annual estimates. With a three year projected EPS growth
rate of 27% the party is not over yet. The P/E of 23 may sound expensive on a
relative basis, but with its EPS growth rate, it is actually reasonable.
As of 7/6/2016 CPRT was up 1.15%
The ‘Short Side’ List
We also analyze for candidates to consider shorting for downward trending markets. The criterion for screening is not exactly the opposite of the long screen. To be most effective with the short list and minimize your risk associated with shorting, it is best to look for newcomers to the short list on a weekly basis.
Remember, shorting is an advanced trading technique. You have unlimited loss potential, so remember to be selective, use a stop loss order and only short in a confirmed downward trending market.
Here’s an excerpt from our June 13, 2016 newsletter and the short stock that the FATI® Score highlighted
Featured Stock – Conn, Inc. – CONN
Industry – Specialty Retailer
Conn, Inc is a regional specialty retailer in the southern
part of the U.S., in particular Texas and Louisiana. They sell home appliance
and garden equipment along with an array of other electronics. The company has
seen their gross margin severely impact by the rising cost of goods. In
addition their interest expense has doubled over the past year. These items, as
well as others have cause a severe contraction in earnings.
There doesn’t seem to be any daylight coming for Conn.
Earnings are expected to decline -89% this year, the P/E stands at 73 and F1
estimates have fallen from $1.77 to $0.11 over the past 90 days. Of the six
analysts following the stock, there doesn’t appear to be any agreement on the
actual EPS as depicted in a FATI Score of 534. Remember, anything over a score
of 12 or higher is disqualified from our long recommendations list.
With a pending market decline and the growing deterioration
of Conn, Inc. fundamentals, we see this as a good shorting opportunity. As with
any short trade, place a stop order and monitor the stock daily.
As of 7/6/2016 CONN was up 12.73%
Putting it All Together
There you have it. “Fundamentals Made Simple”. Just select your stocks from the list and go right into your technical analysis. All the fundamental screening has already been done for you. Each and every week you will receive an updated screening of Top Stock Analyzer with the power of the FATI® Score. You can see the score of each stock.
Here’s our featured stock performance as of 7/6/2016
Our weekly newsletter is a collaboration between AIQ Systems LLC and Fortunatus Advisors, Inc. if you want to learn more about our service visit
Jun 14, 2016 | Uncategorized
Artificial Intelligence Market Signal issues a 0-100 to the downside on June 10, 2016
WinWay TradingExpert AI signals are designed to anticipate changes in the direction of price movement. Some are accurate and some are not. However, more often than not, the Expert Rating signals are accurate. The strongest level of confirmation for market timing signals like this 0-100 down on June 10, 2016 can be found by examining one of TradingExpert’s other market indication components.
One possible confirmation of market timing signals (Expert Ratings of 95 or greater) is the the Up/Down Signal Ratio, on the Weighted Action List (WAL), an AIQ report. A Signal Ratio of 85 or greater in the direction of the signal could be viewed as significant, as the AI system used for stocks is completely separate in terms of expert system knowledge base and data, and share no information or expert rules with the market timing system.
The image below is taken from the WinWay Reports Daily Market Log. This report pulls elements from various parts of TradingExpert. You’ll notice the 0-100 down signal on DJIA on 6/10/2016. Just below that is WAL 5-95. This is the Up/Down Signal Ratio from the Weighted Action List (WAL) in this case using SP500 stocks. This 5-95 confirms that 95% of the SP500 stocks have down signals according to the stock expert system.
The Access Plot area on the right gives a bullish/bearish consensus for the SP 500 stocks using 16 technical indicators.
The two independent components of TradingExpert are in agreement calling for the market to move in the same direction. This is a very powerful type of validation, both the equity and market timing systems have signaled a change in market direction at the same time.
While no system is perfect, it is interesting to note the previous 0-100 market timing signal occurred December 8, 2015 prior to the correction at the start of 2016.
May 2, 2016 | indicators, options, Seasonality
Not every indicator that you look at needs to generate exact buy and sell signals. There are many useful indicators that offer “perspective” more than “precision market timing.” It can be very helpful to track some of these.
The downside of course is that the more indicators you follow the more you can be susceptible to “analysis paralysis” – plus at some point you do have to have “something” that tells you “make this trade NOW!”
But the basis for considering tracking certain “perspective indicators” is that they can help to keep you from falling for those age-old pitfalls, “fear” and “greed”. As the market falls – and especially the harder it falls – the more likely an investor is to start to feel fear. And more importantly, to start to feel the urge to “do something” – something like “sell everything” to alleviate the fear.
On the flipside, when things are going great there is a tendency to ignore warning signs and to “hope for the best”, since the money is being made so easily.
In both cases a perspective indicator can serve as – at the very least – a slap upside the back of the head that says “Hey, pay attention!”
So today let’s review one of my favorites.
The JK HiLo Index
OK, I will admit it is one of my favorites because I developed it myself. Although in reality the truth is that it simply combines one indicator developed long ago by Norman Fosback and another that I read about in a book my either Martin Pring or Gerald Appel.
The calculations are as follows:
A = the lower of Nasdaq daily new highs and Nasdaq daily new lows
B = (A / total Nasdaq issues traded)*100
C = 10-day average of B
D = Nasdaq daily new highs / (Nasdaq daily new highs + Nasdaq daily new lows)
E = 10-day average of D
JK Hi/Lo Index = (C * E) * 100
In a nutshell:
*High readings (90 or above) suggest a lot of “churning” in the market and typically serve as an early warning sign that a market advance may be about to slow down or reverse. That being said, a close look at Figure 1 reveals several instances where high readings were NOT followed by lower prices. However, as a perspective indicator note the persistently high reading starting in late 2014. This type of persistent action combined with the “churning” in the stock market could easily have served as a warning sign for an alert investor.
*Low readings (20 or below) indicate a potential “washout” as it indicates a dearth of stocks making new highs. Readings under 10 are fairly rare and almost invariably accompany meaningful stock market lows.
Figure 1 displays the Nasdaq Composite (divided by 20) with the JK Hi/Lo Index plotted since 2011.
Regarding the difference between a “timing” indicator and a “perspective” indicator, note the two red lines in Figure 2. The JK HiLo Index first dropped below 20 on the date marked by the first red line. It finally moved back above 20 on the date marked by the second red line.
Figure 2 – JK HiLo Index (red line) versus Nasdaq Composite (/20) since 2015 (Courtesy TradingExpert)
Can we say that the JK HiLo Index “picked the bottom with uncanny accuracy”? Not really. The Nasdaq plunged another 10% between the first date the indicator was below 20 until the actual bottom.
Still, can we also say that it was useful in terms of highlighting an area where price was likely to bottom? And did it presage a pretty darn good advance? I think a case can be made that the answers to those questions are “Yes” and “Yes”.
Summary
The bottom line is that while there was a great deal of fear building in the market during January and February, an indicator such as this one can help alert an investor the fact an opportunity may be at hand.
Jay Kaeppel
Chief Market Analyst at JayOnTheMarkets.com and TradingExpert Pro client
http://jayonthemarkets.com/
Apr 13, 2016 | chart patterns, swing trading, trading strategies
We’ve been watching MIDZ – Direxion Daily Mid Cap bear 3X in our barometer the last few trading days. This 3 x bearish ticker has been in a long down trend, but recently Moneyflow has begun to show signs of accumulation and the MACD diverged up when the price was still heading down.
The 5 day barometer readings on Moneyflow and MACD in our Quotes montage are showing some bullish signs either all green or green arrow up. Maybe times are a changing.
Apr 7, 2016 | chart patterns, MACD, options
In this article I detailed one relatively “simple” approach to using the MACD indicator to identify potentially bullish opportunities. In this piece we will look at one to actually put those signals to use.
The Limited Risk Call Option
One possibility upon generating a bullish signal as described in the last article is to buy shares of the stock/ETF/index/etc in question. Not a thing wrong with that. But there is a less expensive alternative.
Figure 1 reproduces Figure 1 from the last piece showing ticker XLF. Let’s look at the signal generated on 2/12/16.
One alternative that I like is to use the “Percent to Double” routine at
www.OptionsAnalysis.com to find an inexpensive call option that has lot of upside potential. The input screen with a few key input selections highlighted appears in Figure 1a (if it looks intimidating please note that a reusable set of criteria can be captured in a “Saved Wizard”, which appear towards the lower right of of Figure 1a. Once a set of criteria is saved it can be reused by simply clicking on the Wizard name and clicking “Load”.)
NOTE: My own personal preference is to consider options that have at least 45 days left until expiration (as time decay can become a very negative factor as option expiration draws closer).
Figure 1a – Percent to Double
Figure 1b displays the output screen.
NOTE: For my own purposes I like to see a Delta of at least 40 for the option I might consider buying (nothing “scientific” here. It is just that the lower the Delta the further out-of-the-money the option strike price is. I prefer to buy a strike price that is not too far from the current price of the stock; hence I look for a Delta of 40 or higher). With XLF trading at $20.49, in Figure 1b I have highlighted the 2nd choice on the list – the April 21 call – which has a delta of 43.
So a trader now has two alternatives:
*Buy 2 Apr 21 strike price XLF calls for $70 apiece ($140 total cost; 86 total deltas)
*Buy 86 shares of XLF at $20.49 apiece ($1,760 total cost, 86 total deltas)
Figure 1c displays the particulars for buying a 2-lot of the April 21 call for a total cost of $140.
By 3/18 the shares had gained 11% and the Apr 21 call had gained 143%. See Figure 1d.
Summary
Obviously not every trade works out as well as this one. Still, the key things to remember are:
*The option trade cost $140 instead of $1760
*The worst case scenario was a loss of $140.
Something to think about.
Chief Market Analyst at JayOnTheMarkets.com and TradingExpert Pro client
Mar 30, 2016 | indicators, MACD
One danger of getting “way to into” the financial markets is that you can find yourself progressing into some needlessly complicated stuff (“Hi, my name is Jay”). I mean it is only natural to wonder “hey, what if I divided this indicator value by that indicator value” and such. But once you start finding yourself taking an exponential moving average of a regression line with a variable lag time, well, you can find yourself “a tad far afield.” (Trust me on this one). Which leads us directly to:
Jay’sTradingMaxim #44: Every once in awhile it pays to remember that the end goal is simply to make money. The more easily the better.
So today let’s go back to a simple “basic approach.”
The Bullish MACD Divergence
We will define an “asset” as any stock, ETF, commodity, index, etc. that can be traded on an exchange (and for my purposes, there should be a liquid market for options on that asset).
Step 1. An asset price falls to a new 20-day low and the MACD value is less than 0. Note the MACD value on this date.
Step 2. Not less than one week but not more than 2 months later:
*Price closes below its closing level in Step 1
*The MACD indicator is above its level at the time of Step 1
Step 3. The next time the daily MACD indicator “ticks higher” a buy alert is triggered
Can it really be that simple? The Good News is “Yes, it can.” The Bad News is that “It isn’t always.” To put it another way, like a lot of trading methods it can generate a surprising abundance of useful trading signals. However, there is no guarantee that any given signal will turn out to be timely. In other words:
This method gives you a good guideline for when to get in, but:
*It may be early at times (i.e., price will move lower still before advancing)
*It will at times be flat out wrong
*You still have to decide when to exit the bullish position.
*Call options are useful with this approach as it allows you to risk a limited amount of capital.
Examples
Figures 1 through 4 highlight some recent examples using this method. Note that the charts show only entry points. Exit points are “a separate topic”.
Figure 1 – Ticker XLF (Courtesy TradingExpert Pro)
Figure 2 – Ticker WMT (Courtesy TradingExpert)
Figure 3 – Ticker AAPL (Courtesy TradingExpert)
Figure 4 – Ticker GDX (Courtesy TradingExpert)
As you can see, some signals were quite timely while others were quite early. For the record, I started getting bullish on gold and gold stocks early in 2016 based in part on the multiple alerts that appear in Figure 4.
Chief Market Analyst at JayOnTheMarkets.com and TradingExpert Pro client
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