Good Evening,
It’s no secret, I’m having a tough time adjusting to the current market. However, I am not the only one. Pretty much everybody is, although not all of them will admit it. To admit it would be to show weakness. I, on the other hand, believe in being transparent and humble. I believe that if you have a weakness, then you need to expose it and get it fixed. Nevertheless, the problem with this market is not so apparent. Some time ago, we identified the fact that it had changed, but it has been our belief that it would return to the way that it had always been when the FED stimulus ended as the economy improved. In anticipation of this event, we all shifted back to our old trading models which obviously have not had the success that they had in the past. The question we are all trying to answer at this time is where do we go from here? Or better yet, how do we adapt to these current conditions if indeed they have changed forever? The answer lies in the root of the change. What makes this market so different from the past? A while back, I noted the computer trading which may be part of the puzzle was effecting the market, but definitely not all of it. I think that I now understand what another large piece of the puzzle is: ETF’s (Exchange traded funds). Instead of investing in individual stocks, many people (including me) are investing in ETF’s. So much so that the market acts in an entirely different manner than it used to. Yes, our charts still work, but the ones we need to look at to make our decisions are different than in the past. I believe that’s why some of the great analysts are shifting to ETF based charts. For instance Carl Swenlin, who is regarded by many as one of the founding fathers of technical analysis, recently started using the SPY (the ETF version of the S&P500) instead of the $SPX which is the actual S&P 500 index. At first I was frustrated with his decision and didn’t understand why he made the change since he offered no detailed explanation. However, with God’s guidance I have now seen the light. The ETF’s are giving a truer picture of the market. The major indices– not so much as they used to. The bottom line is this. We still know how to read the charts, but we must now develop a new set of indicators that better represent this market change. I am now in the process of doing this. With God’s help, we will adapt to these changes as we have adapted to problems in the past. For now, we will continue to navigate the current market as best we can, focusing our effort on the preservation of our hard earned capital.
Here is what RevShark (James DePorre) had to say about the subject in his morning comments:
RevShark:
“All bull markets are not the same. The present market is a particularly good reminder or that fact.When the indices are making new all-time highs the assumption, particularly in the media, is that investors are engaged in aggressive speculation and celebrating the big gains that are reaping. That was the case in many prior bull markets especially back in 1999-2000. However since the Great Recession of 2007-2008 the nature of bull markets has shifted.The biggest shift in the nature of the market is due in large part to the growth in ETFs. The market no longer needs individual stocks to lead it higher. The buying and selling of vehicles like DIA, SPY and IWM have replaced speculation in individual stocks. Ten years ago traders were much more likely to be trading individual stocks rather than various index ETFs.The consequence of this is that we have days like yesterday where the major indices moved higher and created the illusion of strength while under the surface breadth was negative and the action in most individual stocks was lackluster.If you are a stock picker looking for action it is very frustrating market and there is little correlation between the indices and speculative action. What makes it worse is the insistence in the media that it is a great market making new highs. Yes that is the case and is good news for investors who have their 401k’s and the like allocated to broad equity exposure.A big part of the battle between bulls and bears right now is that the two groups are looking at different things. The bulls are rightfully excited about the action in the major indices which look quite good despite the low volume and some overbought readings. On the other hand the bears are complaining about the lack of quality leadership and the poor technical condition of many stocks. The overall market looks very different when you look at through the lens of individual stocks.The big question is how do we deal with this? Many market players simply stick to ETF’s now. Riding the SPY, DIA and similar vehicles has worked well and you don’t need to bother with those annoying individual stocks that don’t seem to recognize the fact that it’s a bull market.As a stock picker I continue to keep looking for opportunities but am feeling quite frustrated lately. A few things work but its narrow, choppy and thin. It has been extremely difficult to put money to work. Many others are experiencing the same thing and they end up putting money into ETFs just so they can be invested.The most important thing you can do is to be cognizant of the way in which the market is acting. There is a major disconnect between the indices and individual stocks and simply recognizing that fact will help us better deal with this market.”
Not-so-terrific Tuesday for stocks
| 06/02/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.4291 | 16.3532 | 25.0907 | 34.2413 | 26.6499 |
| $ Change | 0.0019 | -0.0529 | 0.0209 | 0.0023 | 0.0540 |
| % Change day | +0.01% | -0.32% | +0.08% | +0.01% | +0.20% |
| % Change week | +0.01% | -0.32% | +0.08% | +0.01% | +0.20% |
| % Change month | +0.01% | -0.32% | +0.08% | +0.01% | +0.20% |
| % Change year | +0.99% | +3.89% | +5.09% | +1.70% | +4.25% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.1336 | 22.4393 | 24.2556 | 25.744 | 14.616 |
| $ Change | 0.0019 | 0.0101 | 0.0135 | 0.0163 | 0.0116 |
| % Change day | +0.01% | +0.05% | +0.06% | +0.06% | +0.08% |
| % Change week | +0.01% | +0.05% | +0.06% | +0.06% | +0.08% |
| % Change month | +0.01% | +0.05% | +0.06% | +0.06% | +0.08% |
| % Change year | +1.89% | +2.95% | +3.40% | +3.66% | +3.93% |
