Sunday, November 20, 2016

Weekly Stock Market Outlook 11/21/2016

Stock Market

As of Friday November 18th, Q3 results from 36 retailers in the S&P 500 index have been reported out of the 43 total, which combined, makes up approximately 94% of the sector’s total market cap in the index.  Overall earnings for these 36 retails are up +7.4% compared to the same period last year, and on +4.9% higher revenues, with a relatively low 61.1% .  This beat the EPS estimates and a very low 44.4% coming ahead of top-line expectations.

To date we have Q3 results from 476 S&P 500 members or 95.2% of the index’s total membership. Total earnings for these 476 companies are up +4.0% from the same period last year on +2.6% higher revenues, with 73.1% beating EPS estimates and 55.5% coming ahead of revenue estimates.  Combining the actual results from the 476 S&P 500 members with estimates from the still-to-come 24 index members, total Q3 earnings are now expected to be up +3.6% from the same period last year on +1.5% higher revenues. The +3.6% earnings growth in Q3 is the first positive growth for the index after 5 quarters of back-to-back declines.

Looking at the overall market sentiment, it appears to be out of balance and that typically means more corrective pressure or congestion until we see some evidence of balance between the sectors. The semiconductors are leading and has just passed it's 52wk high in Friday's session.


As compared to the Health Care sector, which is most likely to continue dropping due to the uncertainty of the direction the Trump administration will go with health care.


The most likely scenario will be downside in blue chip sector, which will trigger selling pressure in the overall tech sector, which will consequently push the QQQ [NASDAQ 100] below the 50 day moving average, which will cause further pressure to the overall stock market.


Tech is already at the 50 day and it’s not going to be too difficult to break below this level, since institutional traders do not like to trigger program buying until stocks are trading strongly above the 50 day.

The blue chips should see downside as a result of corrective pressure coming into the overall stock market. The financials need a major catalyst to continue moving higher and consumer stocks are trading below the 200 day moving average…this confirms that the overall market is grossly out of balance and long term momentum based rallies usually cannot sustain themselves when individual sectors are out of balance for prolonged period of time.


Expect blue chips and commodity stocks to begin putting pressure on the stock market, till we see financials fall back inline with pre-election price levels.

The VIX index, which measures the expected volatility of the stock market is still moving lower. The enthusiasm, or the Trump rally as we called it, that propelled the Dow Jones industrial average to consecutive all-time highs last week and gave the S&P 500 index its biggest weekly gain in two years, seems to be over. The rally, which lost some of its momentum in last Friday's session pulling the S&P 500 slightly lower, has continued its downward move through the moving averages   I still think it’s going to take a  few more weeks for the overall market sentiment to completely absorb the impact that the political shift will have on various financial sectors of the economy.




Sunday, November 13, 2016

Weekly Stock Market Outlook 11/14/2016

We now have Q3 results from 445 S&P 500 members or 89% of the index’s total membership. Total earnings for these 445 index members are up +4.0% from the same period last year on +2.7% higher revenues, with 72.8% beating EPS estimates and 55.3% coming ahead of top-line expectations.
The earnings and revenue growth pace for these 445 index members is still low, but nevertheless an improvement over other recent periods.  For Q3 as a whole, combining the actual results from the 445 index members with estimates from the still-to-come 55 companies, total earnings are expected to be up +3.3% from the same period last year on +1.5% higher revenues.

Estimates for Q4 have come down, in-line with the trend that we have been seeing for almost three years now. Total Q4 earnings for the S&P 500 index are currently expected to be up +3.4% from the same period last year, which is down from +5.5% in late September.

Shifting focus to overall market sentiment – It was perhaps the most surprising record-setting week on Wall Street: How quickly investors swapped presidential pre-election jitters for enthusiasm at Donald Trump’s victory over Hillary Clinton.  That enthusiasm — call it the Trump rally — ultimately propelled the Dow Jones industrial average to consecutive all-time highs this week and gave the Standard and Poor’s 500 index its biggest weekly gain in two years. The rally lost some steam Friday, pulling the S&P 500 slightly lower.  It’s going to take a a few more weeks for the overall market sentiment to completely assimilate the impact that the political change will have on various financial sectors of the economy and for volatility level to move back down to pre-election level.

Currently, volatility as measured by the VIX index, which measures the expected volatility of the stock market is moving lower and considering the election took place less than 1 week ago.


It’s a positive sign to see the VIX trade below the 20 level, which tells us that there’s no imminent sign of turmoil on the horizon and decrease in volatility will continue to take place over the next few weeks.



Tech is trading below the 50 day moving average, and I’m seeing substantial downside ahead, since there’s balance between individual sectors.

Retail sales numbers do not appear strong enough to propel sustainable momentum at this time and the most probable scenario will be turn-down below the 90 day line over the next few sessions, when the dust over the unexpected election results settles.

The end of year rally typically originates around the third week of November and begins with the retail sector, which begins to rally off positive earnings growth.

While earnings are better than expected, the medium term growth will take a bit of time to develop sustainable momentum and I’m not seeing the type of earnings growth that will trigger rally from the retail sector, especially in light of the fact that the odds of interest rates going higher in the near term is probable.


Interest rates moving higher would put too much pressure on the overall stock market and more than likely cause either congestion or corrective price action, taking us back to the 200 day moving average to the downside.



Complements of Market Geeks

Sunday, November 6, 2016

Weekly Stock Market Outlook 11/6/2016

Stock Market

The bulk of the Q3 earnings season is now behind us, with results from only 15% of the S&P 500 members still awaited. The Retail sector is the only one at this stage that has a sizable number of reports still to come. The picture emerging from the Q3 earnings season is one of overall improvement, particularly on the growth front. Earnings growth for the quarter is on track to be in positive territory, the first positive growth for the S&P 500 index after 5 quarters of back-to-back declines.  The +3% earnings growth in Q3 is nevertheless a notable improvement over what we saw in the preceding 5 quarter.We now have Q3 results from 423 S&P 500 members or 84.6% of the index’s total membership that combined account for 87.1% of the index’s total market capitalization.

Total earnings for these 423 companies are up +3.6% from the same period last year on +2.4% higher revenues, with 72.8% beating EPS estimates and 55.1% coming ahead of revenue estimates.
Combining the actual results from the 423 S&P 500 members with estimates from the still-to-come 77 index members, total Q3 earnings are now expected to be up +3.0% from the same period last year on +1.5% higher revenues. This would compare to 2016 Q2 earnings growth of -2.8% on -0.2% revenues.

Shifting focus to overall market sentiment, the percentage of stocks in the SP 500 trading above the 50 day moving average is now below 30th percentile, which tells me that stocks are approaching steep oversold territory in the medium term time frame.  The most likely scenario will be a bit more decline, before we begin seeing buying pressure move back into the market once again.

                             

If you look at the chart of the SP 500, you can see that price is violating the 200 day moving average and RSI Oscillator is now in oversold territory, which tells me that price may be moving lower a bit too quickly, in light of the current market climate.

                           

We can expect a bit more downside and possibly a shake out, but overall the market is gaining some degree of balance and appears to be reaching the final leg of selling pressure, before we begin seeing accumulation come into the market once again.

The next few trading sessions may involve higher level of volatility, but the VIX index is not spiking nearly as much as anticipated earlier in the year and that tells me that the majority of corrective action ahead of the election is priced into the current market cycle.



Furthermore, if the FED does push back raising rates till March or June of 2017, the odds of seeing further upside, against the main trend is a very strong possibility.  In a nutshell, the odds of further downside at this juncture is unlikely, especially with the SP 500 violating the 200 day line to the downside.



Courtesy of Market Geeks

Sunday, October 23, 2016

Market Outlook Week of 10/24/2016

Stock Market

Earnings and revenue growth is tracking better relative to what we have seen the last few quarters and a bigger proportion of companies are coming out with positives surprises for both earnings as well as revenues.  Improved results from the major banks are a big reason for the overall positive picture at this stage, but the aggregate picture is tracking below relative to other recent quarters even on an ex-Finance basis.  If this trend continues in the coming days, then aggregate Q3 earnings growth will move into positive territory, the first time after 5 back-to-back quarters of earnings declines for the S&P 500 index. Total Q3 earnings are currently expected to be down -1.0% from the same period last year on +1.5% higher revenues, a notable improvement from the -2.9% decline a few weeks back.
Importantly, estimates for the current period are holding up better relative to the comparable periods in other recent quarterly cycles.

Total Q4 earnings are currently expected to be up +5.2%, only modestly down from last week’s +5.3% growth pace. The expectation is for an even more notable ramp up in growth over the following quarters, with full-year 2017 growth expected to be in double digits.  Including all of today’s earnings reports, we now have Q3 results from 81 S&P 500 members that combined account for 19.9% of the index’s total market capitalization.  Total earnings for these 81 index members are up +3.8%% from the same period last year on +3.6% higher revenues, with 80.2% beating EPS estimates and 63% coming ahead of top-line expectations.  For Q3 as a whole, combining the actual results from the 81 index members with estimates from the still-to-come 419 companies, total earnings are expected to be down -1 % from the same period last year on +1.5% higher revenues.

Shifting focus to market sentiment – I explained over the past few weeks that the tech sector is becoming increasingly vulnerable and medium term momentum levels continue to decline – which creates an environment where less stocks push the overall market higher and that creates increased vulnerability in the overall market. The reason why I’m focused on the tech sector is because medium term momentum levels have been declining in the past few weeks, while the overall market has remained near all time highs.  Internals are pointing to extensive weakness and fewer large caps moving higher – telling us that the most likely scenario is further corrective trading action.

                          oct23momentum

While the QQQ [which tracks the top 100 NASDAQ stocks] is now near the 50 day line, if you look at the momentum levels, they have been steadily declining since middle of summer and that tells me that the upside is extremely limited, especially when we take the U.S. dollar’s recent strength into account.

                           oct23qqq

Shifting focus to the broader stock market – we are seeing major weakness from the retail sectors, which is now trading below the 200 day moving average.

                          oct20retail

The retail sector is a core sector and without a rally over the next few months, it’s going to be increasingly difficult for the overall stock market to rally towards the end of this year or the beginning of 2017, which sets the tone for the remainder of the year.  Based on my analysis – it’s going to be increasingly difficult for the overall market to rally, especially in light of higher dollar and potential for interest rates to move higher in the next few months.  This adds additional layer of pressure on the overall market, which is having a difficult time dealing with the current environment and lack of growth for over 6 quarter.

Bond Markets

Initial jobless claims moved higher in the October 15 week but the rise, up a tangible 13,000 to 260,000, is not due to the aftermath of Hurricane Matthew.

The October 15 week was also the sample week for the October employment report and a comparison with the September sample week is mixed.

The 260,000 level is up 9,000 from the September week but the 4-week average is 6,500 lower, at 251,750 vs 258,250. Results out of Florida, Georgia and South Carolina, the three states hit hardest by Matthew, show little change.

The tie breaker for the monthly employment report will have to be continuing claims but the results will have to wait until next week as this series is reported with a 1-week delay.  And continuing claims are looking favorable, at 2.057 million in data for the October 8 week which is slightly below the month-ago trend.  Last weeks results will not raise expectations for strength in October employment but the sample-week gap is far from monstrous and levels for initial claims remain near historic lows.

The probability that the Federal Open Market Committee will hike its fed funds rate at the November 2 meeting is 7%, which is unchanged from yesterday.  The probability that the FOMC will increase the fed funds rate at the December 13-14 policy meeting is 69%, which compares to 65% yesterday and the probability that the Fed will hike the fed funds rate at the June 14, 2017 meeting is 78%, when 75% was predicated yesterday.  Technically, the 10 year bond reverted back to the downtrend that was supposed to begin last December, when the idea of higher interest rates was assimilated into the overall market for a brief period of time.

                            oct21bonds

At the present time, economy can withstand mild interest rate increase, but the stock market may not agree, at least till earnings are slightly better and that’s one of the reasons we are seeing the majority of key / core sectors trading below the 50 day line, while others make their way below the 200 day line.  Expect minor rallies to the upside, to revert back lower, which will take the bond market further down, over the next 2 to 4 months. Especially, if in fact the FED begins taking action over the next few months.


Courtesy of Market Geeks

Sunday, August 21, 2016

Weekly Market Outlook 8/22/16

Stock Market

We now have Q2 results from 480 S&P 500 members that combined account for 97.3% of the index’s total market capitalization. Total earnings for these 480 companies are down -3.2% from the same period last year on +0.1% higher revenues, with 72.1% beating EPS estimates and 54% coming ahead of top-line expectations.  Q2 earning season has been less negative compared to the last few reporting cycles. This reflects an ever-so-modest improvement in the growth picture, both for Q2 as well as the current period.

Estimates for the current period (2016 Q3) have started coming down as well, in-line with the trend that we have become used to seeing over the last few years.  Earnings growth for the index is now expected to be in negative territory in Q3 as well, with the last quarter of the year as the only period this year expected to have positive growth.

Shifting focus to overall stock market sentiment, the percentage of stocks in the SP 500 trading above the 50 day line continues to decline, even with the broad market making new highs over the past few sessions, which tells me the rally is getting a bit narrower and that the most likely scenario is more downside, especially with the energy sector beginning to cool off once again.

august19momentum

Volatility levels are near historic lows and appear to be reacting less to global stimuli, which tells us that any corrective action coming from the stock market is expected at this time to be relatively mild, erasing the gains we’ve seen over the past month and taking us back to the 50 day moving average to the downside.

august19vix

The last swing high rally did not include major sectors such as utilities or transports, which have massive market share. The overall market must be relatively balanced with at least 80% of major sectors at or near new highs for momentum to continue, which is not the case at the present time.

august19spy

Expect to see corrective action taking the SP 500 back inline with the 50 day line to the downside, which will coincide with the percentage of stocks in the SP 500 trading above the 50 day line to move below 50th percentile and that should occur over the course of the next few weeks.


Bond Market

Jobless claims are low and point unmistakably to strength in the labor market. Initial claims fell 4,000 in the August 13 week which is a very important week as it is the sample period for the August employment report.  The 262,000 level is 10,000 higher than the sample week of the July employment report which isn’t very much at all especially since levels are at historic lows. And the 4-week average is a bit more favorable, at a 265,250 level that is only 7,750 above the month-ago comparison.

august19claims


Continuing claims are likewise only slightly above the month-ago trend.

In lagging data for the August 6 week, continuing claims rose a very slight 15,000 to 2.175 million with the 4-week average up 11,000 to 2.155 million. This time last month continuing claims were roughly 25,000 or so lower. The unemployment rate for insured workers is unchanged at a very low 1.6 percent.

The credit futures market complex is lower and appears to be performing worse than the news would suggest. This should be viewed a sign of weakness, especially for the 30 year Treasury bond futures.

The probability that the FOMC will increase the fed funds rate at the December 13-14 policy meeting is 54%, which is unchanged from yesterday and the probability that the FOMC will increase the fed funds rate at the June 14, 2017 meeting is 67%, when 67% was predicted yesterday.

The potential global inflation threat down the road is likely to become more of a bearish headwind, especially for the thirty year Treasury bonds.  Technically, the long bond continues to stay within the confines of the descending channel that’s been developing over the past several weeks and will likely continue till institutional volume comes into the market early to mid September, which is typically when overall volume picks up substantially following summer months.

august19tlt

Expect more congestive trading range with a breakdown to the downside, which should trigger a downtrend in the long bond, since long bonds are inverse to interest rates and the odds are fairly high that the FED will begin raising rates in the next six to eight months, since the U.S. financial markets are recovering and by that the GDP data will more than likely be at the 2% target, which has been the growth rate the FED has been focused on over the past two years.


Commodity Markets 

Crude oil inventories fell 2.5 million barrels in the August 12 week to 521.1 million barrels, shrinking the year-on-year gain to 14.2 percent.  Petroleum product inventories were mixed, with gasoline down 2.7 million barrels from the prior week to 232.7 million, but still up 9.3 percent on the year, while distillates rose 1.9 million barrels to 153.1 million, 3.2 percent higher than the year ago level.
Including other products, total commercial inventories rose 1.3 million barrels last week to 1,393.6 million barrels, putting the year-on-year gain at 8.8 percent.

Domestic crude oil production averaged 152,000 barrels per day less than in the prior week at 8.6 million barrels, and crude oil imports also fell, averaging 211,000 barrels per day less at 8.2 million barrels.  Technically, crude oil has been moving against the main trend and finally appears to be losing momentum to the upside, which means the odds are strong that the market will revert back to the downtrend, which would put crude oil back inline with the long term trend.

august19uso

The current technical scenario points out the very familiar scenario of the short term trend beginning to fall in line with the long term trend, which presents the lowest risk and the highest probability trading opportunities for short term traders.  I expect crude to begin trading lower till the RSI oscillator is back down to neutral or below neutral territory, which will also push the overall stock market lower, due to high concentration of crude oil related stocks, which have been offering the stock market support in recent days.

Shifting focus to the Gold market, the U.S. dollar should begin gaining strength in coming months, due to probable rise in interest rates over the next several months, which will begin assimilating into the U.S. dollar market, which consequently will cause the Gold market to trade lower and fall back inline with the long term trend, similarly to what we will see with the energy market in the coming months.

august19gld

Technically, the gold market is congesting, which will continue till the interest rate market and the U.S. dollar begin gaining directional momentum, which will cause the gold market to break to the downside and revert back to the down trend that started over one year ago, before the U.S. dollar started falling down due to unexpected weakness out of China during last summer.

Courtesy of Market Geeks

Sunday, August 14, 2016

Weekly Market Outlook 8/15/2016

Stock Market

The Retail sector is the only one where a significant number of Q2 earnings reports are still awaited at this stage; the reporting cycle has effectively come to an end for most of the other sectors, particularly in the large-cap S&P 500 index (plenty of small-cap reports are still to come).  We have 124 companies coming out with quarterly results this week, including 21 S&P 500 members that include major retailers.

As of Friday August 12th, we have seen Q2 results from 25 retailers in the S&P 500 index (out of the 44 total) that combined account for 59.5% of the sector’s total market cap in the index.  Total earnings for these 25 retails are up +6.5% from the same period last year, on +7.8% higher revenues, with a relatively low 52% beating EPS estimates and a very low 24% coming ahead of top-line expectations.

We now have Q2 results from 459 S&P 500 members that combined account for 92.3% of the index’s total market capitalization. Total earnings for these 459 companies are down -3.6% from the same period last year on -0.6% lower revenues, with 71.5% beating EPS estimates and 52.9% coming ahead of top-line expectations.

Thursday, the value of the S&P 500 index closed at yet another all-time high at 2185.79. The trailing 12-month P/E ratio for the S&P 500 now stands at 19.5, based on yesterday’s closing price (2185.79) and trailing 12-month EPS ($111.89).  Based on the current ratio, the index is getting a bit ahead of itself and with a few sectors lagging behind the overall market, them most probable scenario is range bound trading action for a few more quarters, till the numbers finally begin to improve.

Shifting focus to overall market sentiment levels, the medium term time frame tells us that the rally we are seeing is narrow, since the indices are making new highs, while the percentage of stocks trading above the 50 day line continues to gradually decline.

august12momentum

This tells us that the rally we are seeing in the indices is being driven up by retail traders, which focus on large caps the great majority of the time.

If you look at the mid caps, you can see that the index failed to rally to new highs and the index appears to be running out of momentum, which is typical during summer months, when institutional traders are largely out of the market and computerized buy programs are not being triggered.

august12midcap

Volatility levels are at historic lows, which doesn’t typically last very long and the most probable scenario is a rise in volatility, which will coincide with bringing the broad indices back in line with the 50 day line to the downside.

The energy sector and the retail sector are going to be instrumental in helping the bears gain a bit o control towards the downside, which will more than likely cause volatility and selling pressure to increase over the next few weeks.

Bond Market

July retail sales were unchanged, which compares to expectations of a .4% increase and retail sales, excluding autos fell .3% when a gain of .1% was anticipated.

The July producer price index declined .4%, which compares to the estimate of a .1% advance and the producer price index, excluding food and energy, was down .3% when up .2% was estimated.

The number of Americans filing for unemployment benefits fell last week, pointing to sustained labor market strength in early August that could help spur faster economic growth.  Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 266,000 for the week ended Aug. 6, the Labor Department said on Thursday. Claims for the prior week were revised to show 2,000 fewer applications received than previously reported.  Economists polled had forecast initial claims declining to 265,000 in the latest week. A Labor Department analyst said there were no special factors influencing last week’s claims data and no states had been estimated.

Based on values implied from financial futures markets, the probability that the FOMC will increase the fed funds rate at the December 13-14 policy meeting is 43%, which compares to 38% yesterday and the probability that the FOMC will increase the fed funds rate at the June 14, 2017 meeting is 54%, when 53% was predicted on Thursday.

Technically, the mixed FED data is giving the FED another reason to push back the inevitable till June of next year. We are seeing a descending triangle pattern developing, which will more than likely continue to cause selling pressure to come into the bond market, which will cause a breakdown in price.

august12tlt

Rates are going to move higher and bonds will begin assimilating this into their price over the next month, especially if employment and job claims continue to stay near record low levels.  Interest rates and bonds trade inverse to each other and with rates near historic lows, the odds are rather high that we will be seeing more downside from the long bond in the medium term time frame.

Commodity Market

Crude oil inventories rose 1.1 million barrels in the August 5 week to 523.6 million, lifting the year-on-year gain to 15.4 percent.  Stocks of petroleum products declined, with gasoline down 2.8 million barrels to 235.4 million and distillates down 2.0 million to 151.2 million barrels. Year-on-year, gasoline inventories are now up 9.2 percent and distillates up 2.3 percent.

Technically, crude oil is bouncing back from a strong downtrend, which started back in the beginning of June and has increased pressure in recent weeks.

The pullback to the upside in price that we are seeing is expected, especially considering how much value the selling pressure erased over the past 2 months, so a bit more upside is expected, especially in light of the main trend.

august12uso

Expect the down trend to resume over the next few sessions, which will cause further pressure on the overall stock market and cause crude oil to resume it’s downtrend.

Gold should begin moving lower, since volatility or expected volatility due to global pressures has declined substantially in recent months. Asian markets troubles and England are both priced into the current global environment and unless we see unexpected stimuli, the odds of seeing a major spike in the price of Gold is minimal.

U.S. dollar is gaining resilience once again and that’s going to push the overall commodity complex lower, since a rising dollar causes interest rates to increase and higher interest rates are bearish for commodities.

The long term trend in the gold market made it back to neutral territory before pausing once again and over the next few months, we will begin seeing institutional money flow back into the U.S. stock market and out of defensive assets such as precious metals.

Courtesy of Market Geeks

Sunday, July 24, 2016

Weekly Market Outlook 7/25

Stock Market

The picture emerging from the Q2 earnings results thus far is one of modest improvement from the extremely weak levels over the last couple of quarters.  Growth is still non-existent and Q2 is on track to be the 5th quarter in a row of earnings declines for the S&P 500 index. That said, the results thus far are indicating that the worst may be behind us.  If the coming results confirm this trend as well, then we can start having a little more confidence in earnings expectations for the second half and beyond.

We now have Q2 results from 126 S&P 500 members that combined account for 32.7% of the index’s total market capitalization. Total earnings for these 126 companies are down -1.1% from the same period last year on -2.6% lower revenues, with 70.6% beating EPS estimates and 55.6% coming ahead of top-line expectations.  Looking at Q2 as a whole, combining the actual results from 126 index members with estimates for the still-to-come 374 companies, total S&P 500 earnings are expected to be down -3.4% on -0.5% lower revenues.  The Q2 growth pace has ‘improved’ as companies have come out with improved results, but the quarter is still on track to be in the negative for the 5th quarter in a row.

Technically, both short and medium term momentum levels are in the 80th percentile, which tell us that stocks in the SP 500 are now getting a bit ahead of themselves once again.

july22momentum

The most likely scenario is congestive trading action, which should cause the short term and medium term momentum levels to revert back to neutral or oversold territory, which will create some degree of balance and cause the overall stock market to begin trading higher once again.

At the present time, large institutional volume is absent from the market and it wont’ take more than a few negative earnings reports to begin a bit of selling pressure, which is the most likely scenario ahead.

Technically, the overall stock market is overbought and the 10 day RSI moved to the 70 level over the past few sessions, which confirms my momentum analysis that stocks are in fact getting a bit ahead of themselves at the present time.

JULY22spy

Expect mild downside selling pressure to settle in over the next few sessions, which will take the overall market to the 50 day line and possibly a bit lower.

july22vix

The volatility levels as measured by the VIX Index, which measures the expected volatility (implied volatility) over the near term is near historic lows, and that means the most likely scenario is a slow congestive downside trading action or a few sharp day of selling pressure at the worst case scenario, either way we are not anticipating major corrective action at this time.

Bond Market

The number of Americans filing for unemployment benefits fell last week, hitting a three-month low as the labor market continues to gather momentum.

Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 253,000 for the week ended July 16, the lowest reading since April, the Labor Department said on Thursday.

"Claims are near the 43-year low of 248,000 touched in mid-April. Economists polled had forecast initial claims rising to 265,000 in the latest week. Claims have now been below 300,000, a threshold associated with a healthy labor market, for 72 straight weeks, the longest stretch since 1973."

At the present time, the odds of the probability that the FED will increase the fed funds rate by 25 basis points at the July 26-27 policy meeting is 2%. And the probability that the FOMC will increase the fed funds rate at the December 13-14 policy meeting is 47%.

Technically, bonds are losing momentum and approaching the 50 day moving average, as we’ve anticipated over the past few weeks.

july22tlt

Rotation has been moving out of fixed income and back into the equity markets and unless we see major discord from China or Britain the odds are fairly strong that the long bond will revert back to the 50 day line to the downside and begin moving lower as we get closer to the end of the year, since the FED is likely begin raising rates and financial markets will begin assimilating this data ahead of time.

Currency Market

The U.S. dollar recently broke out to the upside from a one month congestion pattern. The rule of thumb is that prices break out of a congestion pattern in the same direction that they came into the pattern. Expect additional gains for the greenback.

The British pound is sharply lower after a purchasing manager’s index that combines estimates of services and manufacturing came in worse than anticipated, falling to 47.7 in July, which is the lowest since April 2009. The 50 level is the dividing line between expansion and contraction.

Financial futures markets are currently predicting there is an 89% probability that the Bank of England will lower its key lending rate by 25 basis points to 25 basis points at its August 4 policy meeting.

The Japanese yen is sharply lower due to reports that Japan’s government is currently discussing adding more stimulus to its economy. There are rumors that additional stimulus could total approximately 3 trillion yen, or $28.3 billion for this year. The Bank of Japan’s next policy meeting is scheduled for July 29.

Commodity Markets

The U.S. is going to begin raising rates over the next several months and the U.S. dollar will continue to strengthen, unless we see something unexpected from China or Britain in the coming weeks.

Crude oil inventories fell 2.3 million barrels in the July 15 week to 519.5 million. Though crude oil stocks have fallen by about 24 million barrels since the record highs set in late April, they are still 12 percent higher than a year ago and at historically high levels for this time of year.

Technically, both Gold and Crude oil are now trading below the 20 day line and over the next few months, the odds are high that we will see both commodities revert back below the 50 day line, which will cause most commodities to revert to being bearish over the next several years, since interest rates are not going any lower and the odds of the U.S. dollar moving higher is rather high, assuming GDP data continues confirming what we are seeing from the labor market.

Courtesy of Market Geeks

Sunday, July 17, 2016

Weekly Market Outlook 7/18

Stock Market 

We now have Q2 results from 36 S&P 500 members that combined account for 10.1% of the index’s total market capitalization.  Total earnings for these 36 companies are down -3.9% from the same period last year on -0.1% lower revenues, with 66.7% beating EPS estimates and 41.7% coming ahead of top-line expectations.  Looking at Q2 as a whole, combining the actual results from 36 index members with estimates for the still-to-come 464 companies, total S&P 500 earnings are expected to be down -5.4% on -0.5% lower revenues.  The Q2 growth pace has ‘improved’ as the banks have come out with improved results, but the quarter is still on track to be in the negative for the 5th quarter in a row.

As has been the pattern in other recent periods, the Energy sector remains the biggest drag on the aggregate growth picture, with total earnings for the sector expected to be down -77.1% on -25.7% lower revenues. Excluding the Energy sector, earnings for the rest of the index would be down -2.1%.

The only meaningful positive earnings growth this year is expected to come from the last quarter of the year, which is then expected to continue into 2017 when earnings for the S&P 500 index are expected to be up in double-digits.  We will see if those estimates will hold up as we reach the last quarter of the year. But given what we have seen over the last few quarters, the odds don’t look that favorable.

Shifting focus to market sentiment, the short term trend is getting ahead of itself. The short term trend is measured as the percentage of stocks in the SP 500 that are trading above the 20 day line.

july1520day

Last Thursday, the percentage went up to 95th percentile, before breaking lower once again and the expectation is for the overall market to cool off and begin pulling back to the 50 day line, which will cause the percentage of stocks in the SP 500 trading above the 20 day line to move into neutral or possibly oversold territory, before we see reasonable degree of balance once again.

The overall market structure as measured by the percentage of stocks in the SP 500 trading above the 200 day line remains near the 75th percentile, which tells me that stocks are slightly overbought but in light of the longer term time frame are still holding relatively steady and the overall market structure is very secure from Global uncertainty and turmoil.

I do want to add that once the percentage of stocks in the SP 500 trade above 80th percentile, I will be looking for beginning of selling pressure or once again extended range bound period, without much directional bias.

july15momentumb

The reason why U.S. markets brushed off Britain’s exit from Euro is because the overall structure is sound and much better off than we were last summer when volatility spiked near historic highs, when we first heard news of Chinese Economy slowing down.

Below you can see the VIX Index, which measures the overall stock market implied or expected volatility, based on the at the money SP 500 options, which are extremely sensitive to uncertainty int he overall market structure and currently the VIX is well below the threshold 20 level, which tells us that U.S. markets have effectively “assimilated” potential financial troubles from Europe.


july15vix
As you can see from the chart above, the VIX Index is currently at or below the levels that we’ve seen PRIOR to news of Britain leaving the Euro and global drama causes spikes in the VIX more than any other financial stimuli, even the FED.  Therefore, based on the current volatility level the only reason we will see a mild spike in volatility over the next few sessions, will be as a result of minor corrective action across most stocks as a result of the short term trend getting a big ahead of itself as measured by the percentage of stocks in the SP 500 trading above the 20 day line.

july15dia

Expect trading action on the major indices to revert back to the 50 day line over the next few weeks and possibly sooner, since institutional traders are largely absent from the current market environment and retail volume rarely leads to “sustainable momentum” over time.


Bond Market

Americans spent more money at retailers and factories revved up production in June, offering encouraging signs of the U.S. economy’s resilience in the face of global headwinds.  Industrial production shot up 0.6 percent, fueled by a big rebound in auto output. It was the best showing since last August. Meanwhile, retail sales also rose 0.6 percent last month, three times the gain in May, with demand strong in a number of areas.  Inflation pressures remained modest, with consumer prices climbing 0.2 percent in June. Prices are up just 1 percent from a year ago, still well below the Federal Reserve’s 2 percent target.

The new reports Friday came a week after the government’s blockbuster jobs report, which showed the economy created 287,000 jobs in June. It marked a major bounce back after a dismal gain of just 11,000 jobs the previous month. May’s result, coupled with a lackluster showing in April, had raised worries that the U.S. jobs machine was starting to sputter.  Analysts said the strong job growth in June and solid consumer spending should provide good momentum for the economy heading into the second half of the year.

The economy grew at an anemic 1.1 percent rate in the first quarter, as measured by the gross domestic product, held back by a slowdown in consumer spending and troubles in manufacturing. Analysts are hopeful that GDP growth strengthened to 2 percent or better in the second quarter, and many are looking for further acceleration in the current quarter.

Technically, over the past week, long bonds reached record highs as foreign investors rotated out of foreign bonds which have negative rates and into U.S. treasuries, which offer very little in the way of income at this time.

july15tlt

Every technical indicator and fundamental factor pointed to weakness in the long bond, but not till the U.S. stock market reached the highest price in 2016 did the confidence level increase sufficiently enough to begin rotating away from fixed income and back into the U.S. equity market, which should continue over the next few sessions as the drama surrounding Britain is being “assimilated” by Global markets.

Overall, I’m expecting the long bond to revert back to the 50 day line and begin congesting till we get a bit more data from the FED that will cause more certainty surrounding raising rates in December, which will cause the U.S. dollar to strengthen and in turn will cause long bonds to revert back to a downtrend, which should consistently lower over the next few years as the FED begins to gradually raise rates.

Crude Oil / Energy

Crude oil inventories fell 2.5 million barrels in the July 8 week to 521.8 million, but refined product inventories grew at a faster rate, with gasoline up 1.2 million barrels and distillates up 4.1 million.

Gasoline and distillate production increased in the week, averaging 10.2 million and 5.0 million barrels per day, respectively.  But demand for motor gasoline eased slightly to an average of 9.7 million barrels per day, and is now up 1.6 percent from last year in the same period, and distillate demand also slightly receded, averaging 3.8 million barrels per day, which is 1.8 percent higher than a year ago.

Technically, crude oil is moving lower and the closer we get to the end of the year the harder it will be for the crude oil market to move higher, since the prospect of higher rates towards the end of the year is a strong possibility and that means higher price for the U.S. dollar and overall stronger economic growth.

july16uso

All of factors that I described are negative for commodities, since commodities trade inverse to U.S. dollar and U.S. dollar moves higher as interest rates move higher or there’s an anticipation of higher rates and that’s the dynamic that we are dealing with at this time, which suggests that commodities, such as Crude Oil and Gold will move lower over the next several months, while U.S. dollar and stocks continue gaining strength.  The same analysis that applied to crude oil applies to the Gold market and the majority of commodities that rise when stocks move lower over time.

Courtesy of Market Geeks

Sunday, July 10, 2016

Weekly Market Outlook 7/11

Stock Market

This week will bring earnings results from 30 companies, including 13 S&P 500 members that include most of the money center banks. These wouldn’t be the first Q2 reports as companies with fiscal quarters ending in May have already been coming out with results and those reports get counted as part of the Q2 tally.  In total, 23 S&P 500 members with fiscal quarters ending in May have reported Q2 results already. Total earnings are expected to be down -6.2% on -0.6% lower revenues. This will be the 5th quarter in a row of negative earnings growth for the S&P 500 index.

As has been the pattern in other recent periods, the Energy sector remains the biggest drag on the aggregate growth picture, with total earnings for the sector expected to be down -76.8% on -27% lower revenues. Excluding the Energy sector, earnings for the rest of the index would be down -3.0%.
While Energy stands out for its very tough comparisons, there is not much positive growth coming from the other major sectors either. The Finance and Technology sectors, the two biggest earnings contributors in the S&P 500 index, are also expected to see earnings decline in Q2 from the year-earlier levels.

For the Finance sector, total Q2 earnings are expected to be down -6.6% on -0.5% lower revenues, which will follow -6.9% decline in the sector’s earnings in the preceding quarter.  It has been a tough period for the sector, with benchmark treasury yields going down the summary 2012 record lows on the back of the Brexit surprise and Fed expectations. This low interest rate environment is a big restraint on the group’s earnings power through continued pressures on net interest margins.

The Technology sector, total earnings are expected to be down -6.4% on +2.7% higher revenues, which would follow the sector’s -4.5% earnings decline on +0.4% higher revenues in Q1.  The big culprit for the Tech sector’s weak showing this quarter (as well as last one) is Apple, whose June quarter earnings are expected to be down -28.4% on -15.2% lower revenues from the same period last year. Excluding Apple, the Tech sector’s Q2 earnings would be down only -0.9%.

Shifting focus to momentum level, the short term trend as defined by the percentage of stocks in the SP 500 trading above the 20 day line is approaching overbought price levels and that means we can expect a few days of lower prices ahead or possibly extended range bound cycle that may end up lasting another few weeks, since there’s very little directional bias and the fall out from Britain has been assimilated fairly well by U.S. stocks at this point in time.

july10momentum

The most probable scenario is a pullback to the 50 day line, which would take the overall stock market back to range bound trading action, which will more than likely persist, till we get closer to the end of year, when the odds of the FED raising rates is above 50th percentile.

The current stock market volatility levels as measured by the VIX index is below the 20 threshold level, which tells us that implied volatility in U.S. stocks is declining rapidly and U.S. stock traders are not seeing major threat to U.S. equity markets as a result of Britain leaving the Euro.

july10vix

Lastly, the likelihood of U.S. stocks breaking out and moving substantially higher in light of both Global uncertainties and strong bond prices is not likely and the most probable scenario is a pullback to the 50 day line, where the overall market will consolidate till we see if earnings revisions are turning better, which won’t happen for another few weeks.

july10spy

Earnings have been revised lower over the past 5 quarters and based on FED data, we may be turning the corner, which means higher U.S. dollar prices and weakness in commodities. This should cause major sector rotation away from defensive stocks and back to growth and tech stocks.

Bond Market

A burst of hiring in June provided a reassuring sign that the U.S. economy will likely withstand global weakness that may be magnified by Britain’s decision to leave the European Union.

Last month’s gain — 287,000 jobs, the most since October 2015 — showed that employers shook off a hiring slump in April and May and suggested that the economy will continue to grow steadily.
May’s scant job gain of 11,000 and April’s modest 144,000 increase had raised fears that the job market was weakening after months of solid growth. The United Kingdom’s “Brexit” vote late last month to bolt the European Union escalated concerns that the global economy could slip into a recession and that the United States would be affected.  The June hiring figures, released Friday, were calculated before the Brexit vote. But the robust job growth served as a reminder that through much of the U.S. economy’s seven-year recovery from the Great Recession, it has repeatedly withstood crises and recessions overseas.

Technically, long bonds continue to trade higher, even though every technical as well as fundamental factor is pointing to a sharp break in price. The reason why we are seeing the influx of capital rotating into bonds is due to negative interest rates in Foreign countries.

july10tlt

Price is currently penetrating the Bollinger Band to the upside as well as giving us an RSI reading above the 70 level, both pointing to a price break. The anticipated target to the downside is mostly inline with the 50 day moving average or possibly lower.

Rotation is starting to move into growth and tech stocks as evident by the IWF (Russell 1000) making new highs on Friday, so it’s very possible that foreign money will begin rotating into U.S. stocks once again, especially in light of the positive employment data that was released on Friday.

july10iwf

The overall scenario for the long bond is higher yield and that means bond prices will begin trading lower and reverting back to the main trend, which will be lower over the next few years, since FED has no plans on implementing negative rates and based on Friday’s employment numbers, the prospect of raising rates in December is probable.  Therefore I anticipate a break in the long bond price over the next few sessions, unless we hear something unexpected from China or Britain.

Currency Market – The U.S. dollar advanced when the better than expected non-farm and private payrolls numbers came in stronger than estimated.  The British pound is higher even though a report showed U.K. consumer sentiment fell by the most in 21 years. The pound has recently overtaken the Argentine peso as the weakest currency in 2016. Even though the currency of the U.K. is a little higher on Friday, the pound is likely to drift lower longer term as declines in interest rates in the U.K are anticipated.

Crude Oil – Crude oil inventories fell 2.2 million barrels in the July 1 week to 524.4 million, the seventh weekly decline in a row. The year-on-year gain in inventories continues to shrink, with crude oil inventories now up 5.1 percent, motor gasoline up 9.6 percent and distillates up 8.4 percent.
Production of gasoline increased slightly, averaging about 10.0 million barrels per day, while distillate fuel production slightly decreased to a daily average of 5.0 million barrels. Total product demand averaged 20.5 million barrels per day over the last four weeks, up 3.0 percent from last year, of which 9.8 million barrels was gasoline, up 2.5 percent, and 3.9 million was distillates, up 1.5 percent from a year ago.  The largest year-on-year increase in demand was registered in jet fuel, which was up 11.7 percent from the year ago period to an average of 1.8 million barrels per day over the last four weeks. Technically, it appears that Crude oil has peaked out which is in line with our expectations of U.S. dollar beginning to rise once again in anticipation of higher interest rates later this year.

july11uso

The main reason why we saw higher commodity prices and that includes the entire commodity complex is due to the extreme weakness in the U.S. dollar as a result of extremely low interest rates.
The FED will more than likely begin raising rates later in the year, at least that’s what employment data is telling us and that will cause the U.S. dollar to begin gaining value, which will invariably cause the commodity complex to trade lower, till it reverts back to the long term trend.

Courtesy of Market Geeks

Monday, July 4, 2016

Weekly Market Outlook 7/5


Stock Market

U.S. stocks closed higher Friday for the fourth day in a row, staging a big comeback after a swoon following Britain’s historic vote to leave the European Union.  The U.S. market ended the week up 3 percent, its biggest weekly gain since November. British stocks have regained all the ground they lost since the vote last week, and U.S. stocks have come close.

The Q2 earnings season will get into the spotlight following Alcoa’s  July 11th report. But the earnings season has actually gotten underway already, with results from 21 S&P 500 members already out.  Total earnings for the 21 index members that have reported results are down -4.1% on +0.9% higher revenues, with 60% beating EPS estimates and equal proportion coming ahead of top-line expectations. Comparison of the Q2 results thus far with prior periods offers a mixed picture. But it’s likely too small a sample to draw any conclusions from in any case.  For Q2 as a whole, total earnings for the S&P 500 are expected to be down -6.2% on -0.7% lower revenues. This will be the 5th quarter in a row of negative earnings growth for the S&P 500 index.

The Energy sector remains the biggest drag on the aggregate growth picture, with total earnings for the sector expected to be down -78.9% on -27.1% lower revenues.Excluding the Energy sector, earnings for the rest of the index would be down -2.8%.

Shifting focus to market sentiment, as most of you know, I follow momentum levels very closely and since March, medium term momentum levels have been declining from a historic high, when over 90% of stocks in the SP 500 began trading above the 50 day moving average.

Finally, when the market reacted to Britain’s exit and lost close to 5% in value, the medium term momentum level finally moved into oversold territory, which was characterized by by roughly 20% of stocks in the SP 500 trading above the 50 day line, which is considered reasonably oversold.

july150
Based on the current sentiment, the odds are fairly strong that the market is going to stay near the 50 day line and congest over the next few sessions, till Global markets gain a bit more certainty and volatility levels continue to decline further.

july1spy

Don’t expect too much directional bias till bonds begin breaking lower and that’s the topic I’m going to jump into next.


Bond Market

Initial claims in the June 25 week did rise 10,000 to a slightly higher-than-expected 268,000 but follow a revised decline of 19,000 to 258,000 in the prior week. The 4-week average is unchanged in the latest week at a 266,750 level that is roughly 10,000 below a month-ago in what is a favorable indication for the June employment report.

claims

Continuing claims confirm the labor market’s strength, down 20,000 in lagging data for the June 18 week to 2.120 million.  In an important comparison, the June 18 week was also the sample week for the June employment report and a specific comparison with the sample week of the May employment report shows a very sizable 40,000 improvement.  The 4-week average, down 13,000 in the week at 2.134 million, is 17,000 below the May sample week. The good news continues with a 1 tenth down-tick in the unemployment rate for insured workers to a record low 1.5 percent.

The main driver of the long bond in the past week was Britain’s decision to leave the E.U. and both the 30 year and 10 year bond are near all time highs, since foreign money is rotating into U.S. bonds and out of foreign stocks, which is only driving bonds higher, even though most indicators are pointing to higher interest rates and lower bond prices over the next few months.

Technically, the long bond is oversold based on just about every technical factor imaginable, including penetration of upper Bollinger Band, excessively high RSI levels and divergence between the RSI and price action, which typically leads to a long term price reversal, which is what I’m expecting from the long bonds over the next few months, since the odds are fairly high that the FED will begin raising rates towards the end of the year and bonds will begin “pricing in” higher yield and begin trading lower, since they trade inverse to interest rates.

july1tlt

The most likely scenario is a pullback down to the 50 day line, which will congest till we begin getting a bit closer the end of the year. The U.S. dollar should begin rising in anticipation of higher rates and that should cause commodities and bond prices to move sharply lower in the coming months.


Crude Oil 

Crude oil inventories fell 4.1 million barrels in the June 24 week to 526.6 million, extending an uninterrupted series of weekly declines to its sixth week.

Gasoline inventories rose 1.4 million barrels while distillate fuel fell 1.8 million. Year-on-year, both crude oil and refined product stocks are still much higher than a year ago at this time, but the gain is quickly shrinking, with crude oil now up 13 percent while gasoline is up 10.3 percent and distillate fuel up 10.8 percent.

crudejuly

Refineries were operating at a very high 93.0% capacity last week, but production of gasoline decreased slightly to 10.0 million barrels per day while distillate fuel oil production rose marginally to average 5.0 million barrels.  Motor gasoline demand averaged 9.7 million barrels per day over the last four weeks, 1.8 percent higher than last year at this time, but distillate demand was 2.9 percent weaker, averaging 3.8 million barrels per day.  Technically, crude may have reached a price high for the current cycle and could well be on it’s way back down along with the rest of the commodities complex. The RSI reached above 70 in early June and price has stagnated since that time.

july1uso

The main trend or the long term trend remains neutral to bearish and fundamentally it’s hard to imagine that Crude oil could have moved so high over the past several months.  The main culprit is the weakness from the U.S. dollar, which moves inverse to commodities and has caused overall support for defensive stocks, commodities and the bond market. With FED targeting raising rates in December, it’s more than likely that we will start seeing a break in the commodity complex and that includes Crude Oil and Gold, in addition to Grains and Softs.


Gold Market

Gold continues to rally in light of weaker U.S. dollar and uncertainty surrounding Britain leaving the Euro. Technically, the entire Gold market is extremely overbought and has gained well over 100% over the past year.  Just about every oscillator is pointing to sharp pullback in price of Gold, which should happen as we get closer to the end of the year, when the markets will begin assimilating higher rates and that will translate into higher value for the U.S. dollar and lower overall price for Gold.

Furthermore, economy is picking up in the U.S., granted much slower than expected, but employment is once again on track, GDP is recovering and earnings revisions for the first time are not as negative as we’ve seen over the past 5 quarters.  Don’t expect too much additional upside, since markets begin discounting everything known, well ahead of time.

Have a great day!

Courtesy of Market Geeks

Saturday, April 30, 2016

Do Traders Really Need a Mentor?

As children, everything we do in life comes with a coach, a teacher, or a parent directing us and helping us along the way. Words of encouragement are plentiful, and there always seems to be someone looking out for our well-being. As adults, this relationship is much more difficult to establish. Wouldn’t it be nice to have someone assisting you in life and helping you find success in everything you do?

As a technology education teacher, I realized early on the importance of being more than a teacher to my students.  According to Webster’s, a teacher is: “a person or thing that teaches something; a person whose job is to teach students about certain subjects”.  Webster’s defines a mentor as: “someone who teaches, gives help, and advice to a less experienced person; a trusted counselor or guide. I believe my decision to be a mentor to them was crucial in helping my students connect the dots between the theory that I taught and their abilities, potential, and goals. By being a mentor to them I was able to provide the advice, confidence, and the network that allowed them to achieve the level of success they envisioned for themselves at the beginning of my class.  So which one would you want helping you through your journey into trading; a teacher or a mentor?

Why is it so difficult to make consistent profits when you are working to be a day trader? I have all this education, but somehow I just can't connect the dots and make money. Why is that? This is a question I get asked a lot and the answer is really very simple.  A common mistake they make is thinking they can figure out the rules and develop the strategies themselves, but end up losing not just time but most or all of their savings trying to reinvent the wheel. I know because I have been there. Numerous places on the Internet will attempt to give you an education on how to trade stocks but the real secret is not only finding the right education but finding the right mentor as well.  Building a solid foundation on which to base your trading is of the utmost importance to survival in this industry. That is what I focus on when I am mentoring traders. As a mentor I educate traders in the proper way to trade stocks in today's market by helping them build a solid foundation which can ultimately lead to consistent profits. To put it simply I help new traders connect the dots.  

If you examine any successful trader, they typically have one thing in common: a mentor. Nearly every successful person in history had someone who they could confide in and learn from when times were tough. To be successful in life it is very important to have a mentor, a coach, or someone with more experience than you. You need someone who has been where you are and is in a position in life that you desire to be in the future. Most people underestimate the value of a mentor and this is the biggest reasons for failure in any endeavor, especially stock trading. A mentor offers valuable insight to things that only experience can teach as well as a host of other things.  A mentor is a brain to pick, an ear to listen, and a push in the right direction.  A mentor can help to shorten your learning curve and open your mind to new ideas and possibilities.  

Learning from a good mentor or trading coach is one of the best investments you can make for your long term success.  You invest in yourself with workout trainers or lessons from golf pros.  Why not invest in your financial future with someone who can help you use the knowledge you have and help you connect it to the skills to make money in the stock market for years to come?  Most people never get to live off of their trading because they never learn how to apply the knowledge and skills with the rules of the game and play it well.   Why set yourself up for failure?  Trading mentoring programs help transfer knowledge from the experienced traders to those who are just beginning. You get to see the way they interpret market movement and how they play the game. You’ll also understand the strategic trade-offs that they consider before making a trading decision.

Mentoring can be done in two different ways: one-on-one or small group sessions. One-on-one private sessions will obviously cost more, but, with a good mentor, can be tailored to your specific skills, problems, and goals.  On the other hand, a small group session allows for collaboration and discussion that can stimulate the mind and lead to other types of trading techniques that might have otherwise gone untouched.  The most important thing to think about when choosing a trading mentor is whether he or she can teach you something you’re comfortable with, not just what they want to teach.  Bad mentors are usually one-trick ponies who only know a couple of things and try to make money off of unsuspecting amateur traders.  

Now, do you even have to ask yourself if you need a mentor?  I hope not.  This blog should help you realize the importance of mentoring in the success of your trading career.   To sum it up, a mentor can give you the benefit of his or her perspective and experience which is vital in developing your trading identity.  A mentor can help you look at situations in new ways. He or she can ask hard questions and help you solve problems.  A mentor can help you define your trading and ensure that you don’t lose focus and continue down that road even when you become distracted by day-to-day pressures.  A mentor who knows you well can be a strong champion of your positive attributes and an ally during any bumpy spots in your career.  A mentor whose trading you admire can be a strong inspiration. With the help of a good mentor, you can trade more effectively with a clearer view of the goals you are trying to reach.  Having a mentor is not just a great idea, it is a proven concept.

Sunday, April 10, 2016

The Anatomy of Making a Trade

As a fellow trader who mentors new traders and as a moderator in the Warrior Trading chat room, one of the most common questions I get is related to the actual process of planning and making a trade. They understand the setup they want to trade and they know what it looks like on a still chart after the fact, but they have a hard time planning and initiating a trade beforehand so they never enter or enter a trade at the wrong times.  I believe the answer lies in developing a process to your trading.

As a professional educator and engineer, I firmly believe in the process approach to trading.  I can safely say that this is a big secret to my success.  My trading process looks like this:
Morning Routine
Develop Watchlist
Build a trade plan
Initiate the trade according to plan
Execute the trade according to plan
Reflection
This process is slightly modified when I switch to my reversal scans after the morning session. Intraday I eliminate my morning routine and my watchlist becomes the reversal scan.

The first question I get when I start presenting this is, “Does HOW you do things actually matter”? Think about something significant you do.  Then think of how it can best be done. Now, consider how you do it currently. This is a great thought process for traders to have. When you take a trade, you need to ensure that you are focused on the right things prior to entering it as well as during the trade. Creating a system for this thought process will take away most of the emotional hang-ups traders experience when looking to enter into a trade as well as managing it while they are in it.

The first thing we must do is develop a perspective of what matters.  This will come from education and practice.  Once a trader has the perspective of what matters, they can proceed to identify the specific processes on which to focus. In each of the steps in my process, there are key leverage points that often make the difference between me having a successful trade or an unsuccessful trade.  The key to success in most full time traders and, often not sufficiently focused upon by beginning traders, is the planning process that enables a trader to focus the important elements of a trade which maximizes their chances of success.

So why do I feel that developing a process important in trading? It is important because it describes how a trade will be put together, provides the focus for executing and managing them, and after the trade, provide a tool for reflecting on to determine if there is something that you missed or could improve on for the next time.

I start my trading process by following the same routine when I get up in the morning.  Trading cannot be looked at as a hobby.  You have to approach trading seriously and as such I wake up, go work out, take a shower, get dressed, and eat breakfast prior to firing up my trading station.  I am awake, alert, and motivated when I start building my watchlist.  This morning routine has helped my mental preparation coming into the market tremendously.  So whatever you do, starting the morning out the same way will pay invaluable dividends.   However, rolling out of bed and throwing water on your face 30 minutes prior to open just doesn’t give you enough time to get prepared for the market open.  Sitting at your computer in your pj’s or underwear does not put you in the right mindset to attack the market.  I know because I have experienced all of these scenarios.

My watchlist comes from a specific scan that I use every morning.  I will not look anywhere else because I am confident that the stocks on that scanner will have the best opportunity to setup for me to trade.  I will vet each stock the same way using a checklist I have to determine if it is actually tradeable for me.  My watchlist is built by 9am and I will not add anything to it after that time.  This allows me to watch the tickers on my watchlist for the 30 minutes into the open.  This actually leads into the next step in my process.

During the 30 minutes prior to open I am watching the tickers on my watchlist and developing trade plans for them based on the price action I am seeing.  This helped me with that deer in the headlight look I used to get when the opening bell rung and all of the lights started flashing on my charts. When the bell rings I’ll have my plans in place written on note cards because it is too easy to forget what you saw on each ticker coming into the open.  What is my plan if it sets up to the long side? What’s my plan if it sets up to the short side?  What setup do I want to see? What are my profit targets? Where will my stop be? Is the profit window large enough for the trade to make sense? Just asking yourself questions like these when you are planning your trades will give you a big advantage because you can then go in with a battle plan and stick to it.  If it is written down in my face I can easily refer to it and that eliminates the anxiety that I used to feel when that bell rang.  All I’m doing at the open is looking for my signal and trigger to enter the trade.

Once the stock sets up, signals, and triggers an entry, I will enter without question, well that is the plan anyway.  Sometimes I may second guess myself, but not often.  I have my profit targets written out on my trade plan and well as the technical level that I am basing my stops on, so after entry I am just concentrating on hitting my marks and booking profit.  There are some that say that knowing when to exit is the hardest part of the trade.  It can be extremely tough to not exit the trade too early if you do not have a pre-set plan. So if you have a plan ahead of time and you stick to it, you will have a better chance of letting your winning trades work and cutting your losses off quickly instead of the other way around.  This will also help with managing your emotions while in the trade.  Last week I talked to our Warrior Pro students about filtering out the noise.  This strategy goes a long way to help do that so that you can focus on the trade.

Once the trade is done I will reflect on how well my plan worked and how well I stuck to what I had written.  Most of the reflection on my trades will come in the evening when I review and recap my trades from the day.   I believe one of the key things forgotten is reflection. “What did I do right?”, “What did I do wrong?”, “Should I have sold earlier?”, etc. are all extremely important for the development of your trading. Just because you made good profits doesn’t mean you are a perfect trader. How you play both sides of the table are extremely important.  Write down or do a video recap of the trade and everything that comes to mind lesson wise. Then, file it away with other past lessons and use them as a reference for the future. Some lessons hit harder than others, but be confident that with time you will only get better. It only takes one time of getting your hand slammed in a door to figure out to be more careful, but may take two or three times to learn to turn on the lights before walking around your house at night.

Why are processes in trading important? They are important because they describe how things are done to prepare for a trade and then provides the focus for executing them.  It helps filter out the emotional social noise giving you a better chance for a more successful winning trade.  It provides you with a tool to go back and reflect on your trades and make you a better trader.   If you focus on the right processes, in the right way, you can design your way to trading success.

Sunday, February 21, 2016

The Power of Being Broke

I am constantly asked about why I wire out my account every month.  My first response is always, I'm not comfortable with my money being off shore, but the reality is Suretrader has a bank here in the US that they service their US clients with, so that reason is a little weak.  My fear of not having enough money to pay my taxes is another reason but if I lose it all, I wouldn't have to pay taxes on it anyway so that argument is also weak.  I also say that I want to protect my gains, which is true.  I like the feeling of having my gains safe from the chance of me giving it back.  Am I a coward?  Do I not have the true mindset of a day trader?  These are the questions that I get asked, and I also ask myself at times.  The truth is, for some reason I didn't realize until this weekend, I am more comfortable and successful trading with a smaller account.  My trading strategy was and is based around growing a small account.  What is it about trading with that mindset that makes me comfortable and more focused everyday in the market?  I never really had an answer until now.  One book I read over this weekend unlocked the mystery of why my strategy works.

You see for a few weeks I tried trading with a larger account well over the PDT rule.  I felt this was my time to take off and not look back.  It was an epic failure.  I only lost about $1500 over a period of 6 weeks because I did have my risk management strategies in tact.  It was like I forgot who I was overnight.  I couldn't see my setups like I used to.  I found myself trying to follow larger traders.  I felt I had to trade like them since I was where they were.  My whole mindset toward trading was different.  I spent too many days watching the market in a daze, not knowing what to do.  I was completely lost, just like I was when I first started trading.  Toward the end of this trial I began getting some professional help from a retired hedge fund manager.  I felt that I needed to get some guidance from someone who was used to trading with larger sums of money.  I got good advice, but that wasn't my problem.  I had lost my identity as a trader.

After this experience ended, I refunded my Suretrader account and almost immediately regained my identity.  I felt that maybe this was as far as I would be able to go.  I mean I almost made 100k for the year trading with my smaller account.  I truly believe I would have hit my goal if I had not tried to trade larger.  But at this point I had accepted the fact that I did not have what it took to trade larger, or that I just wasn't ready yet.  I decided to increase my base account size I started every month off with from 5k to 7.5k at the beginning of 2016 to see how I did with it.  It has worked out great.  At the beginning of the month my share sizes are smaller and I gradually build up my size as the month progresses, providing I am making a profit and my buying power is increasing.   Why does this work so well with me?  I mean for this month of February, I started with 8k and I am up 13,688.89 for the month. Just by employing the same strategies and increasing position sizing as my buying power grows.  I just couldn't understand why I can do it with Suretrader, but when I made the switch I folded up like an envelope.

I mentioned earlier that I read a book over the weekend that unlocked everything for me about how I am able to trade better with a small account versus a larger account.  The book is titled, "The Power of Broke", by Daymond John, the creator of the clothing brand FUBU, and more famously known as one of the sharks from the hit TV show "Shark Tank".  It talks about when you are broke, how having not a whole lot to lose and everything to gain drives you to dig deeper and work harder to get it.  That "sometimes having your back against the wall, leveraging your last dollar, and having no place to go but up; because if you have to succeed to survive, you will."

This is exactly the mentality that had driven me for the past 2 years.  I never knew it had a name.  It is what kept me up until 2 am studying charts of my trades, other traders trades and trying to identify setups.  It is what woke me up at 6 am every morning to get ready for the market before I had to go to work.  It is the Power of Broke that still drives me everyday to work harder and smarter than the next guy.  That 90% failure rate of new traders may just be a little low.  It may be a little higher.  I can tell you about 2 traders, one being myself, out of 25 who started this journey into trading together, that are still in the game.  We worked harder and longer than everyone else.  We were driven to succeed.  You see we were older, had small kids, wanted to spend more time with our families, wanted make sure we could provide the educational opportunities our children would need to make it in this world, and were essentially broke.  We had tried for years to make it the traditional way.  Working a 9 to 5, trying to save $ and provide a comfortable life for our families.  To put it simply, we had our backs against the wall.  We had no other option other than to do what it took to succeed.  This was the mindset that we have.  The Power of Broke.

I know everyone has seen the "Rocky" movies but I want to specifically refer to "Rocky 3".  When Rocky got his block knocked off by Klubber Lang at the beginning of the movie, he had lost something.  The money and fame caused him to lose his hunger.  His will and desire to win at all costs.  You see, he wasn't broke any more.  He wasn't hungry.  He wasn't hurting for anything.  He didn't have that fire deep down inside that burned because he had to win to survive.  All of it was gone the minute he experienced the success of being a champion.  Apollo Creed described it best. "You lost your edge...... You didn't look hungry. No, when we fought, you had the eye of the tiger man.  The edge.  And now you got to get it back.  And the way to get it back is to go back to the beginning".  He had to find that hunger again to get that edge back.

That is exactly what happened to my mind when I switched to a larger account.  When I looked at over 200k buying power after being used to looking at 30k to 60k, I felt I had made it.  I felt like I didn't need to be who I was, that I could be that guy that I always saw as a successful trader.  Suddenly I didn't feel like my back was against the wall.  I'm here to tell you it makes a difference.  I needed that hunger to drive me.  I needed that hunger to keep me moving forward.  That's why the minute I switched back and I was back to square one, where I started, everything fell back in to place.  I needed that lesson. I needed to understand how I worked and what I needed to be aware of as I progressed in this industry.  I am very thankful that I had this lesson when I did.  Now, when the opportunity presents itself again, I will be ready.

I feel that I have finally unlocked the secret of my success as a trader.  The Power of Broke only works for you if you tap into it and put it to work.  You don't have to be broke financially to use this power.  The Power of Broke is a mindset.  There is tremendous power in it.  The more you need to succeed, the more likely it is that you will succeed.  The more you've invested, not a financial investment but an emotional and personal investment, the more you will get back in return.  This is the fuel that will power your passion.  The fuel that keeps you driving forward when everything around you says quit.  Tap into it.  It is there for anyone that wants it.

So what have I learned.  I need to keep the Power of Broke mindset throughout my career.  It is what drives me.  It is what drives my trading strategy.  It doesn't matter how much I make or how much I keep in my trading account, I will always keep that hunger, that desire to grow, that desire to get better.  I will have a goal every day.  I will do my homework everyday.  I will bring my passion to the market every day.  I will remember I am "The Average Joe Trader".  And I will always remember the ways of the shark.  Even when a shark is sleeping, he is still swimming, still moving forward, still ready to attack when an opportunity presents itself.  You see if a shark stops swimming, he will die.  In order to succeed in this industry, you have to live the ways of the shark.  You can find out more about the SHARK mindset here:  "The Power of Broke", by Daymond John  and download the shark points.  I know this book is written more for entrepreneurs  looking to start a business but if you think about it, as traders that's exactly what we are trying to do.


Sunday, January 24, 2016

My Thoughts on Suretrader

When I decided to get into day trading I made sure I did my research.  How day trading worked, what tools I would need, what the minimum investment I would need to get started, as well as the tax and legal codes I would run in to.  I am a big fan of the TV show American Greed, and it showcased some of the most prolific violators of the SEC laws so I was more concerned with those laws than most.  Upon reviewing them, I came across the Pattern Day Trader (PDT) rule.  I was crushed.  How am I supposed to be able to make it when I can’t day trade due to the fact that I had less than 25k to put in a brokerage account?  I began searching for answers.  At the time the only conclusion I came to was to open multiple accounts, but with my limited funds, that wasn’t feasible. 

I don’t remember how but I came across Suretrader.  As usual, I did my due diligence and found some conflicting and concerning results.  I knew from experience that you could not trust everything that you read but I was very concerned about using an off shore broker.  There was something about not being in closer contact with my money.  Maybe if they offered debit cards or something like that I would have felt better but, at that point, I did not have any other choice so I decided to open an account with them.  This blog will share my experiences that I have had with Suretrader from the beginning of my time with them.

Let me first start by saying that I would not be here right now without Suretrader.  There is no way I could have started day trading without them.  I am a true “Average Joe” blue collar American who had to work and struggle for every penny I made so this decision was not made lightly.  So thus begins my journey with Suretrader.

I had a pretty easy time opening an account with them.  The application process was a little different but once I had the application completed I received an email a few days later saying that my account was ready to fund.  The only extra form US citizens have to fill out now is a W9 tax form.  They asked for professional references and bank references but they never contacted them.
I opened a bank account specifically for funding and withdrawing from Suretrader, again just being careful because of the off shore deal, and ordered a debit/credit card for that account.  I funded my account using my credit card and the money was available for trading the next business day.  I have read many negative posts about people having issues opening an account with Suretrader but I can honestly say that everyone I personally know that opened an account did not have any issues opening and funding their account.  There have been some changes in funding since I opened my account back in 2014 but everything for the most part is the same.  Funding with a credit/debit card is the fastest, but it costs 3.5% for it.  The only way this fee adds up and becomes a problem is if you constantly blow up your account and you have to keep adding back.  It’s free to fund via bank wire transfer but it takes longer for the money to be credited to your account.

The only issue I had with withdrawing any money was the rule they had that your first withdrawal had to be done by the same method you funded with, and for no more money than what you originally funded with.  After that there were no restrictions.  To get your withdrawal through bank wire, you will pay a $40 fee.  You have to go through a bank verification process that takes about a week to complete.  Then there is another process to go through on the i-boss platform.  However, once you have done it one time it will be a lot easier.  I withdraw from my account every month using bank wire and the process in pretty painless.  The money is in my account within a few days.  Actually now the wires are cleared for US clients through Citibank in New York so that makes the processing quicker for us.

When I started I was budget minded so I opted to stick with the Active Web platform.  For day trading that platform is a handicap.  It’s only as reliable as your internet connection and in the 2 years I have been with them their server has been attacked numerous times.  Not that your information or account are compromised, but your ability to enter and exit trades would be.  Also, if you lose money during these crashes, Suretrader will not refund your money.  They have a risk disclaimer on their website that states that they are not responsible for losses incurred due to trading malfunctions or system disruptions.  I highly recommend getting the Suretrader Pro platform.  I have not experience any major problems with it.  All of my issues with the Pro platform have been due to my firewall.  I have the Suretrader Pro platform, $49, Market Depth Data Access $40, Regional Quotes (Basic Level 2) $15, and NASDAQ Total View (Book Depth) $20 for a total of $124 per month.  It is well worth the subscription costs.

Their customer service is good but it can get bad during crisis times for two reasons.  They do not have a lot of customer service reps and most of their client base are made up of new traders who do not have a clue what they are doing.  You can’t imagine how many people open up trading accounts who do not even know how to enter a buy or sell order.  The chat lines and phone lines are jammed all day with questions that are similar to that with things traders should learn through taking courses and paper trading prior to opening an account.  So I really don't bash them about their slow customer service. When these traders lose money, of course they blame Suretrader.  They never blame the shortcuts they took or the education they didn’t receive prior to trying to trade live.  Is Suretrader completely innocent?  Of course not.  If you are not careful and keep up with your account, you can “accidently” get double charged for commissions or platform fees.  It won’t happen to you often but it does.  They will refund it though.  You just have to stay on top of that.

Here’s the deal; Suretrader is a necessary evil if you have less than 25k to open a trading account with.    90% of their clients are brand new traders so they are a lot more at risk to lose their money in addition to money they don't have so Suretrader treats us like a high risk client the same way a bank would treat a high risk customer that doesn't have a good credit record.  Therefore they have a few more fees and rules than most.    

So what advice do I have to those who want to open accounts with Suretrader?  Well first, invest in your education.  Without it you are a mark and they will take every dime you send them.  The plan I recommend is laid out here:  http://www.warriortrading.com/getting-started/ Never open any brokerage account and start trading without the proper education.  Make sure you read all of the rules and understand all of the fee schedules.  They are not outrageous.  You just have to make sure you understand how to not make a mistake and incur these additional fees.  Open up a bank account specifically for funding and withdrawing from Suretrader.  Do not keep any more money than absolutely necessary in there.  This should give you peace of mind as it relates to your protecting your other money.  Do not over trade.  Over trading leads to increased fees and exposed risk in the market.  Get the Pro platform.  This will save you a lot of headaches and greatly reduce your risk of losing money due to execution issues.  Just because you can open an account with $500 and day trade doesn’t mean you need to trade.  I would not recommend trading with less than $2500.  I know I started with $1500 but I believe I was lucky to catch some major short squeezes when my account was very low.  Make sure you understand margin and how to use it correctly.  Margin can destroy an inexperienced trader before he even gets started good. 


SureTrader is actually one of the leading online brokers for day trading. With a multitude of features, advantages, and benefits, you should definitely giving them a shot. Just make sure you know their trading rules and regulations thoroughly.  They have good, but sometimes slow customer service but will answer any of your questions or concerns. If you’re under 25k and looking for a solid broker to day trade with, SureTrader has everything you need, so it’s worth checking them out!