Blog – Page 11

Keep Calm and Carry On?

July 9, 2014April 13, 2022

Of late, the FTSE (London Times Stock Exchange) has been struggling to make new highs. When looking to the left on the daily chart, we see that lower highs and lower lows (even though minimal) are beginning to accumulate. In addition, this level appears to bring out plenty of supply (sellers). The overall trend is up, but tightening within an ascending triangle. This price action makes us sit up and take notice. A substantial move could be in the works within the next three months. The FTSE has struggled since early 2013 to clear the 2008 highs. We’d like to see this index break upward (or at minimum, hold this level) to confirm all other current global equity bull markets. If FTSE breaks down, it will cause us to watch all other global equity markets (most notably, the US) with more scrutiny. Keep calm, curious investor.

Bonds

Bonds (TLT) must hold the line

July 3, 2014April 13, 2022

One of my favorite trades of the year has been bonds. Up 10% YTD, our bond proxy, TLT (an ETF), is now at an important inflection point. Recently, it made a lower low and a lower high. Today, it bounced off an upward trendline that runs parallel to the dominant trendline for the past 6 months. It must stay above this trendline and continue daily closes above the line in the sand (dashed line at 110.67), in order to remain long. If it complies, and can clear the last two recent highs, I would consider adding to this position (let’s worry about that later). If it does not hold here, we’ll take our 10% and find something else that likes to increase our portfolio.

Have a safe 4th of July. Remember our independence!

Equity

AAPL of your eye?

June 26, 2014April 13, 2022

Recently, a few friends have asked about buying Apple stock. The reasoning, as far as I can gather, is because the stock is now “cheap.” While it is good to buy things at cheap prices, I would argue that Apple is not “cheap”, but perceived by the retail investor as “cheap” because of the recent 7-for-1 stock split, which brought the share price from above $600 to below $100. A deal, right? I can now get Apple stock for less than $100! Awesome! Freeze! – not so fast. What is really happening here? Let me try an analogy:

One Benjamin for Five Jacksons
As nice as it is to have a $100 bill in your wallet, it’s difficult to use on a daily basis because many stores will not accept them. Therefore, it’s usually best to take that $100 to a bank and exchange it for five $20 bills.
A stock split is a corporate action that increases the number of shares by dividing each share, which in turn diminishes its price. The stock’s market capitalization (the overall value of the equity) remains the same much like the value of the $100 bill is not altered by swapping it for five $20 bills. Five $20 bills still equals $100.

So… Apple has not become “cheap” and is the same in value, but in a different denomination. Why would Apple do this? THIS is the question you, the curious investor, should ask. And the answer should make you think twice about buying Apple right now. So why did Apple do this? Simple. To make the stock appear “cheap” so that more investment dollars will flow in from retail investors like you and me. On it’s face, this not a unique practice and is done by many companies each year. However, be aware that this practice does not make a stock “cheap”, rather affordable. And when you consider that Apple is also well on its way to completing a massive stock buyback program ($130 Billion worth!), it is apparent that Apple is working hard to keep the value of its stock near all-time highs. This buyback program directly affects the price of the stock as they remove shares from the market. This, along with the current price picture for Apple, tells me that the risk is way too high to own Apple stock right here, right now. Take a look at the monthly chart below (which accounts for the split). We are bumping up against resistance from the all-time highs back in November 2012 with a major divergence in momentum. It took a huge buyback program, and now a stock split, to get it here. You can buy Apple stock right here… but you’ll probably be able to get it truly cheaper in the not too distant future.

Cheap? I don't think so. — Cheap? I don’t think so.

Equity

BMO Revisited

June 24, 2014April 13, 2022

The measured move was miscalculated in my 06/06/14 post (see pink arrows in the chart below – this is the measured move, which = $72.50, not $73.50). Accordingly, I am marking this as a target hit, but with a lower case “booyah.” What now? If long, move your stop-loss up -or- sell and enjoy your profit. Now we wait for price to give us a clue as to its next move.

Breakdown

Shorting Russia

June 23, 2014April 13, 2022

When the Ukrainian/Crimean crisis first evolved, Russian equities sold off hard. We like to use ETFs to capture full sectors, markets, or countries. The ETF for Russia is RSX. Since the March panic sell off, RSX has rebounded to a trendline that has provided resistance for the past 7 years. This meeting with the upper trendline coincides with a Fibonacciretracement level of 61.8%. This, along with confirmation of several momentum indicators, make shorting RSX a low risk / high reward trade. Stop-loss = check. Targets = check. Our risk/reward profile is well defined. We like that. A break above the upper trendline would be bullish for Russia (RSX) and would change our stance. We’re not concerned with being right. We’re concerned about being on the right side of the trade.

Market Environment & Structure

VIX Revisited

June 17, 2014April 13, 2022

VIX Recently posted another 3 point indicator to sell equities in the very near term. It is possible the market weakness has already taken place. This is not indicative of a long term pullback, but can always be the beginning of one. Trade safe.

Equity

BMO at decision point

June 12, 2014April 13, 2022

One of the stocks I follow is BMO. Shocking, I know. We’ve been tracking the price moves of BMO well. And now it is decision time. Price is consolidating into a pattern that will either lead to more new highs at 73.50 -or- correct to 66.50 (which could morph into a zigzag correction to 65.25). Either can happen, but I put the correction to 66.50 or 65.25 as more likely based on other indicators I follow -and- the momentum divergences on the weekly and monthly time frame. We should be able to determine direction by the end of this week. Price knows more than we do. Click the image below to embiggen