Technically Speaking

China, India ease, markets respond

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Sun, 05 Feb 2012 16:46:54 GMT

China reduced reserve requirements, India lowered interest rates in the past two weeks and the markets responded positively. Yes, when nearly half the worlds populations' leaders choose economic growth, the planet will experience economic growth. Americans are tired of the economic assault the Obama administration has inflicted on it and sees hope with a new Republican administration in the offing. The market is a future discounting mechanism and it is just beginning to discount economic growth and recovery. The rally that started in December and continues now has many legs and will continue.

Get out of bonds NOW! Get into stocks, commodities and real estate. This is the time for risk taking and you will be rewarded. Like the markets recovered from four years of President Carter, so too will the markets recover from four years of Obama.

Predictions for 2012!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Sun, 01 Jan 2012 17:22:55 GMT

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

Baseline Charts for 2012

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Sat, 31 Dec 2011 19:06:31 GMT

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.

2011 Prediction review, YIKES

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Mon, 26 Dec 2011 18:05:51 GMT

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.

CREE, tax loss selling over

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Thu, 22 Dec 2011 16:38:47 GMT

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!

Relative value?

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Mon, 28 Nov 2011 19:30:19 GMT

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.

Three sectors caught my eye

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Tue, 22 Nov 2011 14:43:04 GMT

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.

It took awhile, but SPY is going to 100, then lower

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Mon, 21 Nov 2011 14:50:58 GMT

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!

What is USA's breakeven interest rate?

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Mon, 21 Nov 2011 02:41:38 GMT

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!

Looking at bond ETF's for the past year

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Fri, 18 Nov 2011 00:41:39 GMT

Not much to say except Treasuries are the best performing type of bond.

Growth or Value does it matter?

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Wed, 02 Nov 2011 17:10:51 GMT

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.

Pump and dump?

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Mon, 31 Oct 2011 21:55:45 GMT

I have been wrong on the markets for the last 28 days.

When the market made lows on Oct 3, I was looking for a continued decline for another 8 percent to test the June 2010 lows about 100 on SPY.

I have not heard otherwise, but I understand flash or computer trading represents over half the volume on the exchanges. It just makes one wonder the behavioral finance embedded in their algorithms on how to create reactions as opposed to predict them? This market move and all the European hype leaves me with the feeling of a Central Bank lead pump and dump, so I dumped the last of my wife's equity holdings this morning.

Happy Halloween, but it is November that spooks me.

Don't be the last fool!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Mon, 24 Oct 2011 22:58:20 GMT

So at the beginning of October the market was heading into "Bear" territory and I felt quite comfortable! It was what I have been expecting and it was confirmation of my investment thesis and clients were in defensive positions. I can understand a oversold rally, but really 108 to 125 on SPY? On what news people? Europe may print a boat load of Euro's to prop up failed bureaucracies?

So in today's rally I decided to do something I have not done since 2006 when my wife's employer adopted this retirement plan through John Hancock, I traded her account. She had seven stock funds mostly international and small mid caps, very aggressive allocation. I sold five of the seven stock funds and put the two largest in Pimco Total Return Bond Fund and the Pimco Global bond fund with the rest going into cash. (I know I cannot stand Bill Gross or Pimco, but it is the only bond fund choices in the plan)

As a said before, I understand a short covering rally, but I have concluded that someone is manufacturing this rally for a purpose. Beware this rally stands on a foundation of quicksand so be a seller and don't buy the hype.

Don't look this gift horse in the mouth!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Tue, 11 Oct 2011 17:59:22 GMT

Any of you notice the market is up nearly 10 percent from it most recent brush with a "technical" bear market? No worries, use this short covering, hedge-fund driven rally to unload your U.S. Equities and buy quality, short duration, non-US government bonds (Canada, Australia, Switzerland, Norway) and variable rate, high quality global corporate debt.

Just a few short days ago I was looking for another eight percent decline, now it is 18 percent from here. Once we get to where I think the market is going, a shopping list is in order.

XLE tops my shopping list! MOO and IYR look like cheap too.

Internationally speaking

Wait for the sell off before you go long.

SPY... risk to 101, lets hope it holds!

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Tue, 04 Oct 2011 00:29:08 GMT

So it has been awhile since I wrote something but I have been busy campaigning for public office. The election is tomorrow and the light at the end of the tunnel has brought me this vision, a chart!

See that low, let us all hope that it will hold! You do not want to see a three year chart plotting other lows, nobody wants to see them again!

Please figure it out Europe, Congress or maybe the Mayan's calendar is really a trading calendar and it is the end of the financial system! FIGURE IT OUT!

Take the hair cuts!

Sarbanes Oxley for State and Municipal Governments

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Tue, 20 Sep 2011 05:55:57 GMT

Congress,

It is high time that regulations regarding government books and accounting methods be streamlined, homogenized, and made accountable! Even the most educated and informed analyst cannot ascertain the financial position of the State or Municipal entity in real time.

Therefore, I propose a Sarbanes Oxley like bill that delineate standards and reporting requirements for any entity that issues bonds that are exempt of United States Federal Income Tax. That the Mayor, Manager and top Financial Officer sign off on with equal consequences of Sarbanes-Oxley.

What do you think? Off base or on target?

Do investors in Municipal and State governments have the same rights to financial and operational information that investors in for profit, publicly traded companies? I THINK SO!

Why don't I believe?

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Wed, 07 Sep 2011 13:44:19 GMT

For some reason I cannot take members of Congress serious when they start talking about spending today and cuts tomorrow. The U.S. House is elected every two years and this House has no ability to control the actions of future "Houses" short of law or a Constitutional amendment, therefore any plan with austerity down the road rings false.

Sure everyone wants stronger economic growth and yes it makes the next few years of austerity a bit easier to swallow, however we must remember that the U.S. economy has been on high powered financial steroids for the past 15 years and all those statistics are about as good as Barry Bonds season home run record.

I am amused by the financial steroid dealers like Paul Krugman who think the U.S. economy can make a comeback as Barry can comeback with just another huge dose of steroids and lead the majors in hitting and homers with San Francisco Giants winning the World Series. Frankly, I am somewhat amazed at the number of educated people who either prescribe or cheer for financial steroids. Thank God these same folks don't run the NCAA, could you imagine the freak show of athletes America would field?

If America wants to create jobs, President Obama should FIRE Secretaries Vilsack, Jackson, and Salazar for a starter. If President Obama wants construction jobs, then America needs a five year vacation from the endangered species act., roadless rules, wilderness designations and any intervention of the Federal Courts in resource development. Why America has conceded management of its land and resources to the Courts and not Department of Interior is beyond me, but the number one job killer in America is the Federal Court system.

Some suggest stocks are cheap

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Mon, 29 Aug 2011 23:52:30 GMT

Many pundits suggest that stocks are cheap and claim that PE ratios are at historically cheap levels!

Well, those pundits should consider that investors are discounting the value of those dollar based earnings in the future. Sure the SP 500 might earn $110 in 2012 but those $110 dollars will only be worth $85 given Fed Chairman Bernanke's pension for printing dollars.

When America's monetary policy is entirely made up of how many dollars should we print, and economists from the Obama Administration and leading academic institutions like Harvard, Princeton, Columbia, and University of Chicago all recommend printing money as the cure all, we are close to the end!

The thought that the Euro zone is worse off and have even bigger idiots in-charge of fiscal and monetary policy is no reassurance, but does impact how fast the US dollars falls relative to other currencies.

Markets say USA is going into - in RECESSION

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Thu, 18 Aug 2011 14:16:50 GMT

You cannot take the steroids away (QE2) and expect the athlete to improve their performance in the short-term. Isn't that obvious to everyone?? Why anyone is bullish for the second half of 2011 or think anything good will happen in the first half of 2012 is ignoring the bond market, stock market, economics and the political situation in the USA.

First, the markets are a leading indicator. The market is discounting the next 12 months and when QE2 ended in June and Congress and the Obama Administration had their tantrums in July, the markets are in the process of changing its expectations for the next 12 months. Sure, the Fed could do something and its impact on future economic events would have to be discounted. Same with Congress and the Obama Administration. Say President Obama did something smart and gave every Governor three infrastructure projects to choose and exempted them from the excessive Federal regulations that obstruct the development of infrastructure.

The markets may fall off the cliff, but the economy will continue to muddle along at a maintenance level pace. Surprise, China and much of the emerging markets are still growing (more demand tomorrow than today) just at a slower pace. That is quite different that Europe of the USA where we are contracting (less demand tomorrow than today) Together, global growth will be flat to contracting in the near term until Europe and USA put their financial houses in order. BTW, that does not mean borrow and spend more.

Death Cross

brad@fluetschfinancialservices.com (Bradley Fluetsch) — Wed, 10 Aug 2011 14:25:10 GMT

When the 50 day moving average crosses the 200 day moving average it is a big deal. Such big deals that the events have names. When the 50 day MA crosses above the 200 day MA it is called a "Golden Cross" and when it crosses below it is called the "Death Cross"

The last Golden Cross was end of June 2009. The last Death Cross was January 2008.

Guess what? EFA and EEM have already produced Death crosses and the SPY, MDY and IWM are all poised to in the next couple of days.

Anyway, take a look.