Good Evening,
We started the morning out with a good GDP report that showed the economy growing last quarter at a higher rate than projected. I thought that would give us a positive day, but the market continued to do exactly what we thought it would do through November and December with more sideways to flat action. As a result, both TSP and AMP were also flat on the day. However, both allocations are hanging onto nice gains for the month of November. Our projection is still for a small gain in December to go along with the one that (barring a disaster) we will have in November. This continues to be the story of an extended market that just won’t quit driven by cheap money and positive seasonality. James DePorre (RevShark) described the best approach to use which also happens to be our trading style in his morning comments at sharkinvesting.com.
“The big question now is the same question we have had for weeks now. Does this endless grind higher continue? The answer is that it is stupid to assume otherwise until there actually is a change in the price action.This market is an extremely good example of why I preach a reactive approach to the market rather than an anticipatory one. The only way you can call a top with great precision is to be anticipatory which is why so many do it but it is also the easiest way to rack up an endless stream of losses as the momentum continues higher than seems reasonable.If you use a reactive approach to the market and only shift your position once there is some actual weakness you will suffer some losses at the turn but the gains you make while sticking with the trend will usually more than make up for it.”
Amen RevShark! That’s exactly the way to play an extended market.
Wall Street ends little changed after mixed data batch
The day’s action left us with the following signals: C-Buy, S-Buy, I-Buy, F-Buy. The F Fund had a nice return of +0.22% today which allowed it to generate a buy signal. Could this signal a change in the character of the market with money rotating out of stocks and back into bonds? I don’t really think it is, but I brought attention to it since it is often a precursor to declining stock prices. You should always raise your level of vigilance when you see this happen. The first thing I learned from my great uncle, who was an avid investor, was that when stocks are up, bonds are down and vice versa. Believe it or not, that’s actually where my knowledge of investing started. While that isn’t always true, it happens a lot of the time so it bears watching. We are currently invested at 50/C, 20/S, 30/I. Our allocation is now +0.18% on the year not including today’s results. Here are the latest posted results:
| 11/24/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.5865 | 16.6877 | 27.2454 | 36.1799 | 25.1677 |
| $ Change | 0.0025 | 0.0138 | 0.0782 | 0.3006 | 0.0256 |
| % Change day | +0.02% | +0.08% | +0.29% | +0.84% | +0.10% |
| % Change week | +0.02% | +0.08% | +0.29% | +0.84% | +0.10% |
| % Change month | +0.14% | +0.26% | +2.75% | +2.01% | +0.14% |
| % Change year | +2.10% | +6.01% | +14.12% | +7.45% | -1.55% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.4511 | 23.0091 | 24.9724 | 26.5846 | 15.1048 |
| $ Change | 0.0145 | 0.0405 | 0.0576 | 0.0729 | 0.0459 |
| % Change day | +0.08% | +0.18% | +0.23% | +0.27% | +0.30% |
| % Change week | +0.08% | +0.18% | +0.23% | +0.27% | +0.30% |
| % Change month | +0.52% | +1.01% | +1.27% | +1.44% | +1.58% |
| % Change year | +3.77% | +5.57% | +6.45% | +7.05% | +7.41% |
Let’s take a look at the SPY with Decision Point. (Chart courtesy of Stockcharts.com)
I decided to annotate the short-term rising trend channel that price has moved into. It’s rather steep and will likely be hard to maintain. The PMO is still rising, but barely, as it has started to reach up toward overbought extremes around 2.0. You might be able to make a case for an ultra-short-term bullish flag forming, but I just can’t get past the fact the market is so overbought already and that flag pole would call for a minimum upside target around 212.
Conclusion: Short-term indicators had been rising for a few days but today turned back down which compounded with neutral ultra-short-term indicators and neutral to bearish intermediate-term indicators; market conditions are negative. Yet, a bull flag could be forming on the SPY. The rest of the week should see a similar trading pattern–low volume and volatility.
I agree, I think we will see a whole lot more of this trading pattern. However, what I think and what my charts tell me could always be different and that’s why I am a reactive trader that sticks to the charts. Nothing has changed. We will continue to monitor our charts while the market creeps up on this holiday run looking for signs of weakness that will surely come. I say again, keep an eye on the bonds, if they really take off you can probably expect a decline in equities. That’s all for tonight. Have a nice evening!
God bless,
Scott
