Technically Speaking
by Bradley J. Fluetsch, CFA
Created With Quick Blogcast
Technically Speaking
Predictions for 2012!
For my sixth year in a row my market predictions in no particular order for the coming year.
1. Worse performing sector in the bond market will be long duration (maturity) US Treasuries, avoid TLT.
2. Developed Europe will rebound by the end of 2012 and German equities will lead the way, own EWG.
3. Emerging Markets cannot by held down for ever, look for them to lead all broad equity markets, EEM.
4. Look for small caps to out perform mid and large camp, overweight small caps IWM at the cost of large cap.
5. Look for XLB, XLE and XLI to lead all SP 500 sectors.
6. Short duration Corporates and inflation protected Treasuries will be the top performing bonds, CSJ and TIP
7. Look for Platinum to out perform both Gold and Silver.
8. Dollar will hit new lows against most currencies except Euro. Swiss will un-peg from EURO.
9. Oil will make new all time high.
10. Equity markets will suffer until Republican candidate is selected, but will not rebound until Vice President candidate is named. Markets will rally most of the summer on a wave of Republican confidence, but will be a disaster approaching the election (September and October will be UGLY) With Obama's defeat, it will be a November and December to remember!!
Bonus prediction!!! The world will not end 12-21-2012
1. Worse performing sector in the bond market will be long duration (maturity) US Treasuries, avoid TLT.
2. Developed Europe will rebound by the end of 2012 and German equities will lead the way, own EWG.
3. Emerging Markets cannot by held down for ever, look for them to lead all broad equity markets, EEM.
4. Look for small caps to out perform mid and large camp, overweight small caps IWM at the cost of large cap.
5. Look for XLB, XLE and XLI to lead all SP 500 sectors.
6. Short duration Corporates and inflation protected Treasuries will be the top performing bonds, CSJ and TIP
7. Look for Platinum to out perform both Gold and Silver.
8. Dollar will hit new lows against most currencies except Euro. Swiss will un-peg from EURO.
9. Oil will make new all time high.
10. Equity markets will suffer until Republican candidate is selected, but will not rebound until Vice President candidate is named. Markets will rally most of the summer on a wave of Republican confidence, but will be a disaster approaching the election (September and October will be UGLY) With Obama's defeat, it will be a November and December to remember!!
Bonus prediction!!! The world will not end 12-21-2012
Baseline Charts for 2012
I think it is important to see what the markets have done in the past, given the global economy's performance.
First, what has the SP500 done compared to its sectors. I add MOO (agriculture) and IYR (real estate) because in my opinion they have sufficient economic differences from the other sectors and you can invest in them.
First thing that strikes me is the increase in volatility in 2011 compared to 2010. Next is the high correlation in market declines and the lack of correlation in market rallies. Another interesting observation is the volume spikes occur in or near the beginning of market declines. The one thing that really surprises me is the strength of the consumer, XLY and XLP. While their balance sheets have improved over the past few years, wages have been stagnant and employment is still tough to come by.
Next let us compare Market Capitalization.
Market theory suggests that more risk more return and Small Cap stocks (IWM) have the most risk. Given that, is MDY (mid cap) doing better than it should relative to small cap or is small cap under performing? I would also point out market cap's are highly correlated.
Now, SP 500 against the world.
While I know Europe is having some financial difficulties, but it is not like the US Congress is doing any better. This chart really surprises me given how weak the US dollar has been for the past five years. Frankly there looks like some opportunity in this chart, but the scary part is how correlated the world has become.
On to Bonds.
I am dumb founded by the performance of long duration Treasuries. TLT, followed by IEF, and TIP. If I didn't know better, investors are giving high marks to the US Congress and its financial management of the country. Can you say BUBBLE! I am at a loss to explain this, it makes no sense whatsoever!
I am going to add a new chart this year because Currency has become such an important aspect to investing in the modern world.
It is hard to fathom the percentage changes in global currencies in the past two years. It is obvious why the Swiss intervened and pegged the Swiss Franc to the Euro, they were being priced out of the export market of goods and services. The other surprise is how poorly the Mexican Peso has performed in the past 12 months given its oil exports. One last thought is on correlations, notice the other currencies are almost negatively correlated to the dollar (as it should be). The question is why does currency changes not flow through to the equity markets?
Good luck in 2012, I will be posting my predictions for 2012 tomorrow and several were derived from this little exercise.
First, what has the SP500 done compared to its sectors. I add MOO (agriculture) and IYR (real estate) because in my opinion they have sufficient economic differences from the other sectors and you can invest in them.
First thing that strikes me is the increase in volatility in 2011 compared to 2010. Next is the high correlation in market declines and the lack of correlation in market rallies. Another interesting observation is the volume spikes occur in or near the beginning of market declines. The one thing that really surprises me is the strength of the consumer, XLY and XLP. While their balance sheets have improved over the past few years, wages have been stagnant and employment is still tough to come by.
Next let us compare Market Capitalization.
Market theory suggests that more risk more return and Small Cap stocks (IWM) have the most risk. Given that, is MDY (mid cap) doing better than it should relative to small cap or is small cap under performing? I would also point out market cap's are highly correlated.
Now, SP 500 against the world.
While I know Europe is having some financial difficulties, but it is not like the US Congress is doing any better. This chart really surprises me given how weak the US dollar has been for the past five years. Frankly there looks like some opportunity in this chart, but the scary part is how correlated the world has become.
On to Bonds.
I am dumb founded by the performance of long duration Treasuries. TLT, followed by IEF, and TIP. If I didn't know better, investors are giving high marks to the US Congress and its financial management of the country. Can you say BUBBLE! I am at a loss to explain this, it makes no sense whatsoever!
I am going to add a new chart this year because Currency has become such an important aspect to investing in the modern world.
It is hard to fathom the percentage changes in global currencies in the past two years. It is obvious why the Swiss intervened and pegged the Swiss Franc to the Euro, they were being priced out of the export market of goods and services. The other surprise is how poorly the Mexican Peso has performed in the past 12 months given its oil exports. One last thought is on correlations, notice the other currencies are almost negatively correlated to the dollar (as it should be). The question is why does currency changes not flow through to the equity markets?
Good luck in 2012, I will be posting my predictions for 2012 tomorrow and several were derived from this little exercise.
2011 Prediction review, YIKES
For the past five years I have posted my predictions for the coming year on January 1st of the year and reviewed those predictions in the week after Christmas. The first four years the review process was not so bad, but for 2011, I have been dreading the review. So here we go.
1. Europe will be the top performing developed market
Clearly the SPY was the top performing market so this prediction was wrong.
2. Large cap US will out perform small and mid cap equities.
BULLSEYE! No regrets on this prediction, it was absolutely correct! So you would not have made any money going long the SPY buy shorting MDY and IWM were profitable!
3. US Dollar will have a bad year, down 10 percent.
Well the US dollar spent most of the year down about 10 percent, but the rally in Q4 cut its loss to a little over three percent. I cannot call the prediction wrong, I cannot call it right, nevertheless it was a money maker.
4. Federal Reserve raises inflation expectations making WIP and TIP top performing bond markets.
If the Fed raised inflation expectations TLT would not have been the top performing bond market. US Treasuries with the longest duration did the best which clearly means the premise was wrong. TIP came in third and WIP dead last making this prediction wrong.
5. Consumers continue to payoff debt making retail #1 loser sector
Well XLP and XLY being the second and fourth best performing sectors this prediction was clearly wrong. Even a blind person can see that XLF was the biggest loser!
6. Interest rates rise and bonds produce negative returns. Please refer to the chart in prediction #4 and you will see that this prediction is wrong! Cash and TIP did earn positive returns while WIP produced a negative one.
7. There may have been 10 defaults, Jefferson County Alabama, Detroit taken over by the State and Central Falls Rhode Island were the only ones that rose to national attention. Municipal financial problems did not materialize to the extent I was expecting so I get another W for this prediction.
8. Equity markets rally through Q1, lose steam in spring, tank in the summer and rebound in the fall.
BULLSEYE! With the minor exception of the markets topping in May this prediction was absolutely correct, especially the tanking in the summer!
9. XLE, XLB and IYR will be the top performing sectors.
I was looking for inflation to raise its ugly head making "stuff" more valuable. No inflation, so "stuff" did not perform as expected. Ok, I was wrong.
10. BRIC countries will be top perfoming emerging markets led by China
Not certain that the BRIC countries were the top performing emerging markets, but China did lead the pack. I will call this a push, neither wrong or right.
Bonus Prediction
12-21-2012 end of the world prediction of the Mayan's enters mainstream media driving gold to $2,150.
Well, 12-21-2012 is beginning to enter the mainstream media and Gold did approach $2,000 per ounce but never did manage to achieve $2,150. So much for my bonus prediction.
This was the worst year in the last five years of making predictions with only two Bullseyes, two pushes and the rest were flat out wrong. Hope springs eternal and 2012 is a new year giving me new chances to be correct! Look for my market predictions on January 1, 2012.
1. Europe will be the top performing developed market
Clearly the SPY was the top performing market so this prediction was wrong.
2. Large cap US will out perform small and mid cap equities.
BULLSEYE! No regrets on this prediction, it was absolutely correct! So you would not have made any money going long the SPY buy shorting MDY and IWM were profitable!
3. US Dollar will have a bad year, down 10 percent.
Well the US dollar spent most of the year down about 10 percent, but the rally in Q4 cut its loss to a little over three percent. I cannot call the prediction wrong, I cannot call it right, nevertheless it was a money maker.
4. Federal Reserve raises inflation expectations making WIP and TIP top performing bond markets.
If the Fed raised inflation expectations TLT would not have been the top performing bond market. US Treasuries with the longest duration did the best which clearly means the premise was wrong. TIP came in third and WIP dead last making this prediction wrong.
5. Consumers continue to payoff debt making retail #1 loser sector
Well XLP and XLY being the second and fourth best performing sectors this prediction was clearly wrong. Even a blind person can see that XLF was the biggest loser!
6. Interest rates rise and bonds produce negative returns. Please refer to the chart in prediction #4 and you will see that this prediction is wrong! Cash and TIP did earn positive returns while WIP produced a negative one.
7. There may have been 10 defaults, Jefferson County Alabama, Detroit taken over by the State and Central Falls Rhode Island were the only ones that rose to national attention. Municipal financial problems did not materialize to the extent I was expecting so I get another W for this prediction.
8. Equity markets rally through Q1, lose steam in spring, tank in the summer and rebound in the fall.
BULLSEYE! With the minor exception of the markets topping in May this prediction was absolutely correct, especially the tanking in the summer!
9. XLE, XLB and IYR will be the top performing sectors.
I was looking for inflation to raise its ugly head making "stuff" more valuable. No inflation, so "stuff" did not perform as expected. Ok, I was wrong.
10. BRIC countries will be top perfoming emerging markets led by China
Not certain that the BRIC countries were the top performing emerging markets, but China did lead the pack. I will call this a push, neither wrong or right.
Bonus Prediction
12-21-2012 end of the world prediction of the Mayan's enters mainstream media driving gold to $2,150.
Well, 12-21-2012 is beginning to enter the mainstream media and Gold did approach $2,000 per ounce but never did manage to achieve $2,150. So much for my bonus prediction.
This was the worst year in the last five years of making predictions with only two Bullseyes, two pushes and the rest were flat out wrong. Hope springs eternal and 2012 is a new year giving me new chances to be correct! Look for my market predictions on January 1, 2012.
CREE, tax loss selling over
I don't know about you, but LED lights have become a major part of Christmas. Can you imagine the electric bill if you were still using those old fashion Christmas bulbs? How many more Christmas tree fires would we have if everyone was still using those old fashion bulbs?
Not that CREE is a major manufacturer of these Christmas tree bulbs, but they demonstrate the absolute advantages of LED lighting that could be expanded to all other lighting applications.
Take this opportunity to buy the next generation of lighting technology, BUY CREE!
Merry Christmas, this is my gift to you my readers!
Not that CREE is a major manufacturer of these Christmas tree bulbs, but they demonstrate the absolute advantages of LED lighting that could be expanded to all other lighting applications.
Take this opportunity to buy the next generation of lighting technology, BUY CREE!
Merry Christmas, this is my gift to you my readers!
Relative value?
Is anything ever that good or ever that bad? So I am taken back to college economics and the thoughts of marginal utility and is that next dollar of debt or the next dollar of savings. I was contemplating is the marginal utility of selling the next dollar of loss of German equities to the marginal utility of buying the next dollar of gold?
Are German equities really that bad? Is gold relatively speaking, that good? Germany is cheaper than the emerging markets and that is crazy!
One Year
Three Year
Five Year
SLV and Gold have shined these past couple of years. The question is will they shine in the years to come or will they be sources of cash to buy the excessively cheap German industrial complex.
These charts do not make a compelling argument for Japanese stocks or the SPY.
Bonus chart, look at the level of price change in the past six months! Low volume, large price swings equals market manipulation by the flash traders.
Are German equities really that bad? Is gold relatively speaking, that good? Germany is cheaper than the emerging markets and that is crazy!
One Year
Three Year
Five Year
SLV and Gold have shined these past couple of years. The question is will they shine in the years to come or will they be sources of cash to buy the excessively cheap German industrial complex.
These charts do not make a compelling argument for Japanese stocks or the SPY.
Bonus chart, look at the level of price change in the past six months! Low volume, large price swings equals market manipulation by the flash traders.
Three sectors caught my eye
Expecting significant stock market declines in the near future, like many in that situation, I am building my shopping list. I looked a MOO yesterday and noticed a inverted head and shoulders bottom. So I started running charts on all the sectors and that same inverted head and shoulders appeared in two other sectors, XLB and IYR. Interesting that Agriculture, Basic Materials and Real Estate all have the same pattern which is unlike the rest of the sectors.
MOO, XLB and IYR are on my list, now I am just waiting for the something to hit the fan so I can buy at much lower levels.
MOO, XLB and IYR are on my list, now I am just waiting for the something to hit the fan so I can buy at much lower levels.
It took awhile, but SPY is going to 100, then lower
This whole October rally smelled like a dairy farm and acted like it was orchestrated to suck the general investing public in. Fortunately, I used it as an exit and will be watching the coming decline for entry points. Those entry points will be based on price level and speed at which the market achieves them.
Hang on, markets are going DOWN!
Hang on, markets are going DOWN!
What is USA's breakeven interest rate?
It is strange that I know a 7 percent interest rate for Spain or Italy's is a default level, but have no idea of America's default interest rate. What is the level of interest rates that would bankrupt the USA, where interest payments exceed total tax revenue given our level of debt?
You know, even having to think about that is disgusting and Congress and the Obismal Administration better wake up to the fact that the current set of policies of spend to support bloated, over-reaching government is bankrupting America.
If we are "One Nation under God" I sure hope he knows our banker!
You know, even having to think about that is disgusting and Congress and the Obismal Administration better wake up to the fact that the current set of policies of spend to support bloated, over-reaching government is bankrupting America.
If we are "One Nation under God" I sure hope he knows our banker!
Looking at bond ETF's for the past year
Not much to say except Treasuries are the best performing type of bond.
Growth or Value does it matter?
I wanted see if the Growth / Value debate still existed and to see who is winning.
So I ran a number of charts comparing IWM Russell 2K against IWN, Russell 2K Value and IWO Russell 2K Growth in different time frames.
One Year
Three year
Five year
Last decade
Conclusion, the debate must be raging. Growth has outperformed for the last five years but has not made up for the significant under-performance from the beginning of the decade. What is surprising is how bad value performed in the 2008 market collapse ( I am betting on financials were in the value side of of the index divide)
Sorry no answer here.
So I ran a number of charts comparing IWM Russell 2K against IWN, Russell 2K Value and IWO Russell 2K Growth in different time frames.
One Year
Three year
Five year
Last decade
Conclusion, the debate must be raging. Growth has outperformed for the last five years but has not made up for the significant under-performance from the beginning of the decade. What is surprising is how bad value performed in the 2008 market collapse ( I am betting on financials were in the value side of of the index divide)
Sorry no answer here.