Good Evening,
Sometimes you have to ask, why ask why, because it is what it is….. This morning the ECB announced measures to attempt to stimulate the European economy. The initial reaction was exactly what we predicted it would be. Stocks were making mild gains and most defensive investments were taking it on the chin with the exception of a few select precious metal and bond funds and I do mean a few. Then a strange thing happened. In spite of the newly lowered European interest rates, the dollar (which has been strong) got stronger. What??? The UUP rose by over 1 percent. Now you would think that a strong dollar is a good thing. However, it is not good for commodities and precious metals. Commodities such as oil are priced in dollars so the stronger the dollar gets, the lower they go. It’s like a stack of dominoes falling when it gets to a certain point. Also, one of the perceived best safe havens, gold, always heads down when the dollar goes up. Exports become more expensive effecting the business that US companies do abroad and ultimately the trade deficit. Why do you think the Japanese are trying so hard to lower the value of their currency. That’s the reason that they elected Shinzu Abe as Prime Minister. They affectionately call his stimulus programs Abenomics. At any rate, a healthy currency is a good thing but if it gets too strong, then not so good. If you want further explanation then you’ll have to talk to an economist. The bottom line is this: the rising dollar puts pressure on a lot of investments. I had considered investing in the UUP (The powershares US Dollar index fund) a short time ago, and in retrospect it would have been a great decision, but like the market in general, I had to ask myself just how far it could run given the current conditions. Obviously, it has run long enough to bring gold and oil to their knees… Stocks bowed out on the day due to a poor jobless claim report. The end result for us is that both TSP and AMP took a step back.
Here’s what the ECB did today. It stops short of an out and out QE program like the Fed has, but nevertheless it is significant and could upset the apple cart in the US bond market.
The European Central Bank cuts rates again Thursday and unveiled plans to buy some private-sector securities as it battles to stave off deflation and recession.
Stocks flat as oil drop offsets ECB stimulus
The days action left us with the following signals: C-buy, S-Buy, I-Buy, F-Neutral. We are currently invested at 40/C, 60/S. Our allocation is now -3.13% on the year not including today’s results. Here are the latest posted results:
| 09/03/14 | |||||
| Fund | G Fund | F Fund | C Fund | S Fund | I Fund |
| Price | 14.5128 | 16.5414 | 26.2208 | 35.8919 | 26.4824 |
| $ Change | 0.0000 | 0.0102 | -0.0153 | -0.1366 | 0.2002 |
| % Change day | +0.00% | +0.06% | -0.06% | -0.38% | +0.76% |
| % Change week | +0.01% | -0.25% | -0.11% | -0.02% | +0.71% |
| % Change month | +0.01% | -0.25% | -0.11% | -0.02% | +0.71% |
| % Change year | +1.58% | +5.08% | +9.82% | +6.60% | +3.59% |
| L INC | L 2020 | L 2030 | L 2040 | L 2050 | |
| Price | 17.3316 | 22.8612 | 24.8046 | 26.4003 | 15.0148 |
| $ Change | 0.0041 | 0.0165 | 0.0204 | 0.0217 | 0.0153 |
| % Change day | +0.02% | +0.07% | +0.08% | +0.08% | +0.10% |
| % Change week | +0.02% | +0.07% | +0.09% | +0.10% | +0.12% |
| % Change month | +0.02% | +0.07% | +0.09% | +0.10% | +0.12% |
| % Change year | +3.06% | +4.89% | +5.74% | +6.31% | +6.77% |
The only safe place to be today was the G Fund. That said, the losses were mild, but losses nonetheless. I am posting a lot of charts tonight. Most of the indicators we watch are beginning to point to a downturn. If not that, then at the least some very healthy consolidation. Here are many of the indicators we watch courtesy of Stockcharts.com with analysis be Erin Heim of Decision Point.
“On the open, price just barely crossed above overhead resistance and then snapped back toward horizontal support along the July high. The PMO has nearly topped. More consolidation or of course, a price decline will turn the PMO down. Volume on the SPX is gaining, but it isn’t pushing price past overhead resistance which could be considered a problem in the short term.”
“Ultra-Short-Term Indicators: We are still seeing negative divergences on the CVI and Participation Index – UP, I also see that Participation – DOWN is increasing which is bearish. “
“Short-Term Indicators: These indicators are starting look somewhat undecided about which direction they want to go. There is the pressure to unwind and the consolidation is not enough to get the ball rolling down hill, a small pullback would probably do the trick. “
“Intermediate-Term Indicators: Yesterday the VTO topped and today both the ITBM and ITVM topped too. This is bearish. However, I’d like to see a more definitive move lower or even better, negative crossovers their EMAs.”
“Conclusion: Indicators in all three timeframes are starting to agree that it is time for a pullback of some sort. Consolidation is helping to clear some of the overbought short-term indicators, but it isn’t enough as they are starting to hesitate on the decline. The intermediate-term indicators are probably the most damaging as they have been bullish for so long, but now they’ve become overbought and are turning down. Price is being squeezed inside the space between short-term overhead resistance and horizontal support at the July high. Based on the indicators, we should expect to see at least a small breakdown.”
I posted a bunch more charts tonight so you would fully understand what we are looking at. These, as well as many other charts that I watch, are all pointing toward some consolidation or a price dip. That supports my earlier analysis that we would have a pullback on or after Labor Day. We will watch the charts and adjust our allocation if this occurs. One thing worth noting is the fact that bonds (which of course for TSP is the F Fund) are getting a little choppy. They, like stocks, are are extended. My feeling is that with the ECB reducing interest rates, that European Bonds will become more attractive pulling money out of the US bond market. The fact that the F Fund produced a Neutral sign today supports this train of thought. It may come to pass that we are forced to head to the G Fund as nothing else works. We will see. Stay on your toes, this looks like it could be a rough month. Keep praying and watching your charts! Listen to God and watch for the signals. He will guide us through this year just as He has all the others! Give Him the praise! That’s all for tonight. Have a nice evening!
God bless,
Scott
