Sector Update - Biotechs & Utilties Stand Out

Biotechs Weekly

Biotechs have been taken out to the woodshed ever since July of 2015.  The reasons are numerous from Activist' disagreement (Valeant), overvaluation, & even negative political targeting by both parties.  Regardless, the $XBI looks to be acting healthier & to have formed a bottom on the weekly chart above.  A close above $61 will pique my interest into starting a position. 

Utilities Weekly

Utilities have seen the best sector performance of 2016 with a 19.8% increase.  They have come in some on the weekly chart above & the $XLU is testing it's 10 Week Moving Average.  It has held this line well in its run up in 2016.  I'll be watching closely for a close above $51.25 on Friday to put on a position. 

Global Market Update - Keeping a Close Eye on Europe; Especially Germany

Europe Weekly

Europe has been in a major downtrend since June 2014.  It has been acting much better recently, & I will be watching a few major ETF's closely.  

Above is the $VGK, which represents large cap European companies.  It's most heaviest weighting is in the United Kingdom (~31%), with France (~14%), Switzerland (~14%), & Germany (~13%) having a big impact as well.  It's heaviest sector is Financials, which make up close to 19% of the fund.  It currently yields ~3.3%, but is only paid out annually towards the end of December.  The Expense ratio is very nominal at 0.12%, as most Vanguard funds are.  

Between the continued fallout of Brexit & the risk associated with European Financials, this one could certainly turn back down at the drop of a dime.  I'll be watching the $50 area for a weekly close, before I put on a position.  

Taking a closer look at the European Markets, Germany has broken above it's 50 Week Moving Average (a very bullish first step in hammering out a long term bottom).  The $EWG also closed right at $26.50, which was it's most recent high from April.  I like this to test $27 in the upcoming week.  If we get a higher close on the weekly chart above, I will likely leg into a small position.  

Good luck & God bless!

US Macro Update - August 15, 2016

SPY Weekly

The $SPY finished slightly higher & with a Doji candle on the weekly chart above.  A Doji candle represents a neutral candle & illustrates the indecisiveness of the overall market.  The market got a big boost from a beaten down retail sector with Macy's ($M), Nordstrom ($JWN) & others beating on  their quarterly earnings.  The $SPY looks good overall with both the 10 Week & 50 Week Moving Averages rising.  I'm waiting for a pullback to the 10 Week Moving Average (~$211) to add to any long positions.

IWM Weekly

The Small Cap Index is looking to play catchup & break out to it's all time highs above $127.50.  The $IWM is still about 4% below it's all time highs, and if this were to happen it would be a very bullish signal for the overall market.  

QQQ Weekly

The Nasdaq chart has the best look of the major US indices.  The $QQQ has gone straight up since the Brexit scare in June.  I'd wait for a pullback to the $115ish area before looking to add to any positions.  

The US Indices all look good at this juncture.  We are pretty much finished with the majority of earnings season at this point.  The market will be reliant on central bank speak/decision-making and economic data in what should be light trading up until after Labor Day Weekend.  I won't be adding to any long positions in the $SPY unless we get about a 2-3% pullback.  

Good luck & God bless!

US Macro Update - August 10, 2016

SPY Weekly

The SPY broke above $213.78 a few weeks back & has held up nicely.  The 50 Week Moving Average is finally perking up for the first time in the past year.  The 10 Week Moving Average (Red Line above) is sitting between $210-$211.  I'll be waiting for a pullback to this area before adding anything to my position.  Overall, it is a very bullish chart.

GLD Weekly

Gold is also still acting very healthy.  The precious metal took a hit on the big NFP/Jobs number last Friday, but this is likely just a healthy pullback before another move higher.  

TLT Weekly

Long dated Treasuries have been a huge performer this year.  They are digesting the recent breakout above $138.50.  As long as it holds the $136.50 area on a closing basis, I like this to also continue higher.  

The US indices are hitting new all time highs almost on a daily basis.  The fact that safe havens like the $TLT & $GLD are still holding up well, gives me pause & is preventing me from aggressively adding to any long term US equity positions.  Overall I believe the US markets look complacent, but like them to continue to grind higher.  

Good luck & God bless!

The Gold to Platinum Ratio Explained

20 Year Chart Gold Platinum Ratio

Historically, Platinum has traded at a premium to Gold.  In other words, one ounce of Platinum is normally more expensive than one ounce of Gold.  The median over the past 20 years is around 0.8 (which also aligns with the historical average), meaning Platinum has traded at a 20% premium to Gold (on average).

Currently the ratio stands at 1.17, and has traded above 1.35 as recently as 6 weeks ago.  The chart above illustrates that the ratio is falling, which means the price of Platinum has outperformed Gold in the short term.  If you are bullish precious metals in general (which I am), I highly recommend you take a look at investing in Platinum as opposed to Gold via the $PPLT (most liquid Platinum ETF).

If you are an aggressive trader, you can look to put on a pairs trade by buying Platinum ($PPLT) and shorting Gold ($GLD) until this ratio normalizes.

Good luck & God bless!

Investing in Precious Metals - The Gold/Silver Ratio Explained

20 Year Gold/Silver Ratio Chart

Gold has been one of the best investments in 2016, with the $GLD (the most liquid/heavily traded ETF which tracks the underlying price of the commodity) up over 27% on the year & the $GDX (large cap global gold miners ETF) up a whopping 124%.  These returns are nothing to sneeze at.  If you have caught wind of any recent headlines on the markets, you simply cannot avoid all of the Gold bugs raving about a major trend change (which I agree with).

If you are bullish on precious metals, then you should add the Gold/Silver ratio to your investing toolbox.  The above is the 20 year chart of the Gold/Silver ratio.  What is the Gold/Silver ratio?  Simply put, it's the ratio of the number of silver ounces it takes to buy an ounce of Gold.  When the ratio is falling, this means that silver is outperforming gold (& vice versa when rising).

Over the last 20 years we have seen a range of 93.73 - 30.70.  Based on the last 20 years, we observe that any reading in the 55-70 range is neutral.

How do we use this ratio to interpret our investments?  First off, precious metals typically move together.  This strategy should only be used when precious metals are in a bull market/have been acting healthy as a group (which by almost all technical measures, they currently are).  When we get a higher reading (>70), we should lean towards putting money to work in Silver.  Conversely, when the ratio drops below 55, we should lean towards investing in Gold.

We closed Friday at 67.84.  I'll be watching for any more upside in the Gold/Silver ratio (>70) to dip my toes into a Silver position.

I will go over the Platinum/Gold ratio in my next post.  Until then, good luck & God bless!
 

Making a Case for China

China Weekly Chart

It's almost amazing to look at the run up & proceeding crash in major Chinese large cap equities ($FXI) from April 2014 - February 2016.  That is why the price action in the $FXI has my attention again.  There is still tremendous upside potential in the Chinese economy & markets alike.

The FXI looks to have formed a lower high in early June, & has recently regained it's 50 Week Moving Average.  Additionally the 10 Week & 50 Week are about to make a bullish cross.  We have been grinding sideways for a few weeks to diminish the overbought conditions from the recent rise.  If we get a close above $34.84 today, which seems almost like a given, I'll be putting on a full position at the market close.  I will use the 50 Week Moving Average as my stop.  Good luck & God Bless!

Bitfinex Hack Should Raise Security Awareness for Bitcoin

Above is a daily chart of Bitcoin.  Yesterday, Bitfinex (Bitcoin's third largest exchange located in Hong Kong), was hacked for just under 120 thousand BTC (~$65 million dollars).  This is the second time a major exchange has been hacked since Bitcoin's inception (Mount Gox being the first back in 2013).  This certainly hurts investor confidence and discredits the digital currency as an investment.  It also caused a large price drop of over 20% & a loss of over ~$1.5 billion in market cap for Bitcoin.  Not good, but this seems like merely another bump in the road.  My favorite analogy to this type of situation is as follows:  When a US bank is robbed, does everyone panic & exchange/liquidate all of their US dollars?

The Bitfinex hack should raise security awareness for all Bitcoin investors.  While it is necessary to use exchanges on occasion, I highly recommend doing so in small amounts & removing your money from the exchanges immediately once the transactions have settled.  It is a must to secure your bitcoin on your own in cold storage or on a hardware wallet.

Hardware wallets allow you to store the private keys to your Bitcoin on a device immune from computer virus' that infect software wallets (what you would create on an exchange or keep on your computer/mobile device).  The following three hardware wallets are the most common, with a few key differences to each.

1. Trezor - This is the most common hardware wallet & most trusted by Bitcoin Enthusiasts.  It retails for about $120 USD. 
2. Ledger - This is the cheapest hardware wallet that retails for just over $30 USD.
3. KeepKey - This is my preferred hardware wallet due to its sleek design & added layer of security.  It retails for around $100 USD.  

The Bitfinex hack highlights the risk involved with keeping your coins or any currency on an exchange.  I highly recommend anyone investing in Bitcoin to do their own research on one of the above products.  It is a very small investment necessary to protect your digital fortune.

Bitcoin Chart Update

As you can see Bitcoin finally broke out of it's bear trend & above it's 50 Week Moving Average  in October of 2015 when it was priced around $275/coin.  As I am writing this Bitcoin is trading just above $550/coin, which is equivalent to a 100% gain from the major trend change since last October.  Looking at the chart above, it is easy to tell that Bitcoin is a very volatile instrument.  Bitcoin was trading above $775/coin just a mere 6 weeks ago.

Even with the loss of ~30% in the past 6 weeks, Bitcoin is still in a major uptrend.  I think now is a good time to buy a few for a long term investment or add to your position.  Bitcoin traded below $480 yesterday on a major news event (Bitfinex Exchange Hacked), so the very savvy dip buyers are already getting paid.  I believe this will mark a near term low/capitulation type event in price, but if the news flow continues to be overly bearish, I can see it retesting the $450 area where a lot of support lies.

Long term, just add on the big dips & right here looks like a good spot to do that.  The 50 Week Moving Average is ~$392/coin and steeply rising.  This is a very bullish sign.  Until this trend changes, I see no reason to panic sell.

Taking a Longer Term Approach for Effective Passive Investing

I'd like to introduce the 50 Week Moving Average Strategy to anyone who doesn't want to obsess over each tick of global markets. This is a much more passive approach to investing that utilizes macro investing principles in an effective manner.

The above is a weekly chart of the S&P 500 index dating back to 1999. I used 2 different moving averages in the above chart; the 10 week in Red & the 50 week in Blue. I went back to the year 1999, so that it is easy to illustrate multiple Bear (2) & Bull (2) markets.





Facts about this strategy:

1. If you choose to use this strategy, you will never sell at the very top or buy at the very bottom; however, you will catch the major trends in both directions.
2. You will occasionally get chopped around, but that is where your discipline as an investor comes into play. You must stick with the strategy to make it work & remove all emotion from your decisions.
3. With the use of index funds (i.e. $SPY, $QQQ, $IWM, $FXI, $EEM, etc.), which I highly recommend for this strategy, you will be well diversified.
4. Most index funds pay a dividend. For example, the $SPY is currently paying 2.10% yield at the time of this post.
5. The strategy will beat the market if you stay disciplined.

How the Strategy Works

Its a very simple, passive strategy that will take a max of 15 minutes a week (I know this sounds almost too good to be true, but bare with me). The thought process behind the strategy is to own the market or a particular portion of it when it is acting "healthy." When the market is acting unhealthy, I prefer to invest my money in safe havens such as precious metals & treasuries, but you can choose to keep yours in cash.

1. Buy an index fund that is currently trading above it's 50 week moving average right before the close for the week (I recommend the $SPY). Weekly candles normally will finish completing on Friday's unless it is a shortened trading week. In my opinion, the S&P 500 is the best barometer for the US Market, but if you prefer something different (Nasdaq, Small Caps, China, Japan, Europe, etc.) then by all means choose which one you are most bullish on. Ideally, we are entering a market/index that has been below the 50 Week Moving Average and is crossing above it for the first time in a good while (possible major trend change). This is not a requirement, but you will likely see higher returns &/or get chopped around.

2. As long as the index you bought closes above it's 50 Week Moving Average on a weekly basis, then you do not have to make any changes. It is best to save a chart in any various charting programs available to easily track the weekly market close. I recommend Trading View or Stockcharts.com (both free sites), but any charting program will do.

3. If the weekly candle closes below the 50 Week Moving Average for the index you chose, then sell the full position. At this point you have the option to put your money in safe havens such as Precious Metals or Treasuries (my preferred strategy) or merely leave it in cash.

4. When the index/market regains the 50 Week Moving Average, get back in.

So in summary, you want to be in the market when it is acting "healthy" (my preferred barometer is the 50 Week Moving Average), and out when it is acting "unhealthy." This strategy removes your emotion in investing & completely blocks out the noise and narratives attached to each trading day.