Good Evening,
Well we hit another one of those land mines that we talked about a little while back in that Russian troops entered Ukraine. At the time, we were discussing late August and September and said that we would stay defensive if possible. Obviously, we were not able to do that in TSP as the defensive investments available in thrift just won’t stack up against a rising stock market. However, we read our charts well and have accumulated some nice gains at this time. Should the market take an extended break we will have plenty of time to exit gracefully. Our defensive strategy in the AMP program has continued to pay off with a steady stream of gains that are almost stock like on days like today that have a negative bias. AMP posted another solid gain of +0.434% trouncing all the major indices for the second day in a row. It is now up +2.29% for the month with the possibility of adding more tomorrow. Also, on a positive note for TSP, the equity market showed strong support by only selling off mildly when it could have easily been more. You would have to think that many traders are just looking for an excuse to lock in some profits at this point, but they have all learned that selling too early has not been a winning strategy in 2014 as we know all to well. All that said, both TSP and AMP are having excellent months which highlights my earlier point that due to the lack of diversity in Thrift investments, that it must be handled differently than our AMP program on the street. Even though one program is defensive and the other is not, they are both having excellent months. I say all this for the benefit of those that are trying to learn more about the nuts and bolts of investing. As you can see it’s much more than just being in or out of stocks! RevShark had some excellent comments about the difficult trading environment this year. Hopefully this and other information that I have provided for you give you more insight into why so many hedge funds are lagging in performance not only in this year, but in recent years to boot……
James DePoore at Sharkinvesting.com
| 08/28/14 7:02 AM: Morning Thoughts
“Early indications are for a weak open this morning. We are extended on light volume and we have a long weekend coming up so some profit taking isn’t too surprising but it brings up an important issue: how aggressively should you trade market volatility?
Prior to the Great Recession traders would produce superior returns by moving in and out of the market as trends developed and then shifted. Savvy traders would ride the uptrends and then move to cash or short when things shifted. It is much more difficult than it sounds but that is how good hedge funds and active traders produced superior results.
Since the market bottom in March 2009 this sort of active trading has become much more difficult. The market has tended to reward those who simply buy-and-hold. The reason for this is because the dips are so shallow and when we do have a pullback the recoveries are so swift.
The dilemma for those who do try to actively time the market is that they are given so little opportunity to reload their long positions if they sell into a pullback. One of the characteristics of the market for quite a while now is that so many bulls are chronically underinvested. They are constantly struggling to find long exposure in a market that doesn’t make entry points easy.
So far this year the S&P500 has had three pullbacks in all three cases we have come back in a straight line and never retested the lows. If you sold on the breakdown and then didn’t rush to reload on the dip you were left standing on the sidelines.
What adds to the difficulty is that there are so many market players that are convinced that a much deeper correction is looming. They are quick to believe that this time the correction is going to be different and if they aren’t highly defensive it will be extremely costly.
So the question this morning is whether the early weakness should push us to make some sales and be prepared for a deeper correction or do we hold tight and stay confident that weakness will be short lived?
When a market is at its highs the dip buyers typically will provide good support at first so it often is a mistake to be too bearish at the very first signs of weakness. However if you trade momentum stocks gains can disappear quite quickly if you don’t act fast when things soften. The three dips earlier this year were very costly for many momentum traders who didn’t act fast enough when momentum and speculative names soften. Those groups fell much faster and further than the broader market and the failure to keep tight stops resulted in having to make up a lot of ground subsequently.
It isn’t my style to call tops and I’m not suggesting that we have one now but it is important to consider how much room you will give your long positions if they start to weaken. I give back too much early this year and my inclination now is to play tighter and to take the risk that I’ll have to rebuy if the market keeps running higher.
Regardless of your approach the thinness of the market the next couple days is likely to complicate things. Yesterday there was some subtle distribution in a number of stocks and we have a weak open on the way. Make sure you have a plan in mind.”
|
Wall Street Skids Despite Upbeat Economic News
| 08/27/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.5071 | 16.5593 | 26.2007 | 35.8006 | 26.4497 |
| $ Change | 0.0009 | 0.0263 | 0.0066 | -0.0187 | 0.0435 |
| % Change day | +0.01% | +0.16% | +0.03% | -0.05% | +0.16% |
| % Change week | +0.03% | +0.24% | +0.61% | +0.84% | +1.21% |
| % Change month | +0.18% | +0.98% | +3.81% | +4.70% | +0.44% |
| % Change year | +1.54% | +5.19% | +9.74% | +6.33% | +3.46% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.3236 | 22.8443 | 24.7828 | 26.3739 | 14.998 |
| $ Change | 0.0042 | 0.0089 | 0.0110 | 0.0121 | 0.0074 |
| % Change day | +0.02% | +0.04% | +0.04% | +0.05% | +0.05% |
| % Change week | +0.20% | +0.45% | +0.57% | +0.65% | +0.73% |
| % Change month | +0.81% | +1.64% | +2.07% | +2.39% | +2.63% |
| % Change year | +3.01% | +4.81% | +5.64% | +6.20% | +6.65% |
“SPY is caught between the support of the July high and the top of a rising wedge formation. The formation is not particularly severe, but there it is, with the eventual expectation of a downside resolution. Volume has been weak for some time, and especially so in the week before Labor Day.”
“Conclusion: Pre-holiday churn has characterized this week’s market action, but a negative internal picture is emerging in all three time frames. Last week we pointed out the possibility of some price weakness in the ultra-short-term, but the market overcame the internals to make new highs; however, negative internals are developing in the short- and intermediate-term, accompanied by a price top. We think that it is a likely time for trouble to emerge.”
