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Gold-Silver Ratio: Debunking The Myth

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Gold-Silver Ratio: Debunking The Myth

By: Kelsey Williams | Thu, Jun 15, 2017


A 16-to-1 gold to silver ratio has been the Holy Grail of some silver investors since the mid-sixties.

Unfortunately, fifty years later, it is a quest that continues unabated without success.

In fact, there is evidence that contradicts and widens the chasm that separates wishful thinking from reality.

In the Mint Act of 1792, the U.S. government arbitrarily chose a 16 to 1 ratio of gold prices to silver prices. The actual prices were set at $20.67 per ounce for gold; and $1.29 per ounce for silver.

Prior to 1792 the U.S. did not strike its own coinage. That changed with the establishment of the Philadelphia Mint, which was also authorized by the Mint Act of 1792.

The official price of silver and the market value of silver remained relatively close until the late 1800s.

In 1859, prospectors discovered the Comstock Lode in Virginia City, Nevada. It was the largest silver vein in the world.

Combined with silver already in circulation, this additional supply “flooded the market” and forced the value of silver well below its official price of $1.29 per ounce. This is another classic, historical example of inflation in a pure sense – a devaluation of the money supply. The silver in a silver dollar was now worth much less than the official price of $1.29 per ounce. (Also see: Mansa Musa, Gold, And Inflation)

Congress responded promptly by passing the Coinage Act of 1873, ceasing all production of silver coinage in the U.S. Five years later it reversed itself by passing the Bland-Allison Act which restored silver as legal tender and required the U.S. Treasury to buy large quantities of it. Silver producers were awash with the metal and it was hoped that this new agreement would create more jobs within the mining industry.

A series of other legislative efforts either repealed earlier bills, and/or furthered the requirements of the U.S. Treasury to purchase silver to support the market or to use in the production of silver coinage.

For the next seventy years, the U.S. government ramped up its efforts to control the price of silver. It offered to buy silver at artificially high prices which in turn over-stimulated production of the white metal. This was pleasing to voters in silver mining states. But in the process, the U.S. government acquired a stockpile of over two billion ounces of unneeded silver.

All the while, the market price for silver continued to decline. In 1887, the average annual price of silver dropped below $1.00 and by 1932, at the depths of the Depression, reached a low of $.25 per ounce.

Also concurrent with this, the gold-to-silver ratio continued an upward march. By the time silver reached its Depression era low of $.25 per ounce, the gold-to-silver ratio had risen to 80-to-1 ($20.67 divided by $.25). By 1940, the ratio had risen to an all-time high of 97-to-1 ($34.00 divided by $.35).

Silver’s primary value as an industrial commodity asserted itself beginning with U.S. involvement in World War II and the gold-to-silver ratio began a gradual decline that lasted for twenty-seven years reaching a low of 16-to-1 in 1968.

After that, and coinciding with free markets for both gold and silver, the ratio proceeded to climb all the way back to near 100-to-1 in 1991. There was one, very brief, period of six months between July 1979 and January 1980 when the ratio fell from 32 down to 16 but was back up to 40 almost immediately after that.

Silver investors who are depending on a declining gold-to-silver ratio are betting that silver will outperform gold going forward. But, if anything, the chart (see link above) shows just the opposite. For the past fifty years, the ratio has held stubbornly above a rising trend line taking it to much higher levels.

The last spike of any consequence below that trend line happened in 2011; and lasted all of three months.

Other than that, any downward moves of significance in the ratio were from much higher levels. And, to add further discouragement, some favorable – for silver – changes in the ratio occurred with actual silver prices either in decline or already at much lower levels.

Gold and silver are two different items with their own independent functions and uses.

Gold is real money. Silver is an industrial commodity with a secondary role as money.

The gold-to-silver ratio that existed one hundred fifty years ago was mostly the result of political influence and appeasement. It was an arbitrary number.

It might be reasonable to expect a ratio for purposes of consistency and uniformity within the existing monetary system. However, the price used for silver at $1.29 per ounce was considerably in excess of the current (then) market price. It was an early form of price support.

There is no fundamental reason which justifies any particular ratio between gold and silver.

(also see Hi Yo Silver! Sort Of… and Silver Is Not Real Money)

By Kelsey Williams for Safehaven.com


Kelsey Williams
Kelsey’s Gold Facts

Kelsey Williams is retired (2005) and living in Southern Utah. He has forty-five
years experience in the financial services industry. In 1972 he acquired his
first “real” money by exchanging some depreciating paper dollars for gold and
silver coins. The U.S. dollar price of gold at that time was less than $70/oz
and silver at $1.60/oz. He advised clients professionally between 1975-80 regarding
similar acquisitions and has always counseled his clients throughout his financial
planning career to maintain positions in gold. He enjoys swimming, reading,
writing, and listening to music.

Copyright © 2017 Kelsey Williams

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Published at Thu, 15 Jun 2017 14:44:11 +0000

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Imperial Brands Recruits Cannabis Expert to Board

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Imperial Brands Recruits Cannabis Expert to Board

By Shoshanna Delventhal | June 14, 2017 — 8:50 PM EDT

British tobacco and cigarette giant Imperial Brands (IMBBY) has appointed Simon Langelier, the chairman of Canadian medicinal cannabis group PharmaCielo Ltd, to its board of directors. The marijuana industry expert previously held a 30-year career with rival Philip Morris International Inc. (PM).

The announcement comes as Imperial, one of the least diversified of the major tobacco companies, is shifting its strategy after posting a 6% decline in global tobacco volumes in the most recent six-month period.

Goodbye ‘Tobacco’

As Big Tobacco struggles to boost revenues due to declining global smoking rates and increased government regulation, including higher taxes and stricter packaging laws, major players have doubled down on innovation outside of traditional businesses. Global cigarette leaders have deployed billions of dollars in research and development (R&D) to build out vaping products, heat-not-burn sticks, e-cigarettes, low-calorie energy boosters and other alternative smoking products that they would like to market as “reduced harm.” Tobacco companies’ expertise in growing and distribution has led to many to believe that they could easily move into the high-growth cannabis market if legalization continues to expand. (See also: Tobacco Industry Earnings Reverse Winning Streak.)

Imperial Brands, which officially removed the word “tobacco” from its name 18 months ago, is clearly pushing ahead in its efforts to move beyond its legacy business. Given tobacco leaders’ transition into the cannabis space occurs, Imperial’s new new board member will leverage his background at the helm of a supplier of medicinal-grade cannabis oil extract and related products. Langelier also brings in his experience as president of Philip Morris’ next-generation product segment, including e-cigarettes, vape and heat-not-burn sticks called iQOS. Imperial’s chairman Mark Williamson highlighted Langelier’s extensive international experience in tobacco and “wider consumer adjacencies” as assets to the board.

Closing up 0.8% at $46.52 on Wednesday, IMBBY has lost 4.2% of its value in the most recent 12-month period, while gaining 6.8% year-to-date (YTD). (See also: Imperial Brands Ditching Tobacco for Caffeine.)

Published at Thu, 15 Jun 2017 00:50:00 +0000

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Tracking the Psychology of the Market with Event Flow

 

Tracking the Psychology of the Market with Event Flow

When we think of trading psychology, we typically think of the psychology of the trader and the factors that either contribute to or distract from a peak performance mindset.  Another facet of trading psychology is reading the intentions of other market players.  This is very similar to psychology in poker.  The mindset of the poker player is important, and it is also important to read the psychology of the other players at the table.  The skilled poker player reads those tells from other players to infer if they are bluffing or if they might be holding the nuts.  When short-term trading/market making occurred on the trading floor, reading the other participants in a market truly was more like reading other poker players.  With most market activity being electronic, we need other ways of inferring the intentions of market participants.

Above we see a chart of what I refer to as Event Flow for yesterday’s session in the ES futures (6/12/17).  I will be discussing this measure during this afternoon’s free webinar and in particular detail at this summer’s workshop in Chicago.  (Here are details regarding the webinar and workshop).  In a nutshell, what I’m doing with event flow is breaking down the day’s action into volume-based events, where each bar represents the price action of each 1000 contracts traded.  What I’m interested in is the price behavior *within* each bar.  If price closes more toward the high end of the bar, I will categorize that bar as a “buying” bar and vice versa.  The chart depicts a cumulative running total of buying and selling bars, in the manner of an advance-decline line.

Most of the time the Event Flow line will follow price relatively faithfully.  It is the divergences that are of particular interest.  Notice, for example, how sellers were dominating in the afternoon, but ultimately were unable to push prices below their morning (and below their previous day’s) low.  The inability of sellers to move price lower (or vice versa) creates a situation where those participants will be forced to cover when flows and prices turn.  Note the nice rally in ES (blue line) after sellers are trapped in the afternoon.

Event Flow is a complement to other ways of inferring the psychology of market participants, such as upticks/downticks (NYSE TICK) and Market Delta.  Event flow is easily constructed for any instrument trading centralized volume.  It is also relatively robust with regard to the participation of optimal execution algorithms, as noted in quant research (see here and here).  Algos may be buying bids and selling offers in an efficient manner.  This would not necessarily show up in measures of upticks/downticks but would be reflected in price behavior within thin volume slices.  Event Flow can be aggregated over longer time frames to provide bigger picture views of market participant bullish/bearish psychology.

I’ve generally found traders much more interested in focusing on their psychology, rather than the psychology of the markets they’re trading.  That’s a big mistake.  Typical price charts are far too blunt as tools for assessing the psychology of the marketplace.  With Event Flow, we don’t have to track the market transaction by transaction but can still obtain a relatively finely grained assessment of how those close to the market are behaving.

I look forward to sharing more at the webinar this afternoon and the workshop in July.

 

 

Published at Tue, 13 Jun 2017 10:38:00 +0000

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Turning Emotional Trading Into Informed Trading

 

Turning Emotional Trading Into Informed Trading

Apparently there were some sound quality issues during the latter portion of my webinar presentation yesterday.  For those who missed some of the ideas that I will be covering in the summer workshop in Chicago, I’ll sketch those out in two posts.  

The first idea is that many of our patterns of poor trading are themselves triggered by shifts in emotional state.  Among the more common emotional triggers are:

  • Overeagerness and overconfidence – Winning can skew our subsequent decision making;
  • Frustration and anger – When we lose, our frustration can lead to impulsive decisions;
  • Anxiety and uncertainty – Fear of losing can interfere with proper risk taking;
  • Negativity and depression – Losing can begin to feel like being a loser 

An important principle is that many, many of these emotional triggers are themselves set off by changes in the marketplace.  When markets change their volatility, trend, etc., the trading patterns that worked at one time no longer work.  Patterns that had not worked now suddenly seem to come to life.  The wise trader entertains the hypothesis that emotional state shifts are potential indications of changing market regimes.  The emotions we feel are information that tell us to step back and reassess market behavior.  

In other words, we can use our emotional awareness to become more emotionally intelligent.  Once we shift states and recognize that a trigger has occurred, we step back from trading and reevaluate our expectations and ideas.  Emotions become a tool for flexibility and adaptability–not a trigger for rigid behavior and poor trading. 

Too often, we treat emotional responses as things to overcome or avoid.  If we are closely attuned to the markets we’re trading, how we feel can often provide the first clues as to something different in those markets that we need to pay attention to.

 

 

Published at Wed, 14 Jun 2017 09:59:00 +0000

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Will Technology Stocks Sell-Off Drive Stock Market Lower?

 

Will Technology Stocks Sell-Off Drive Stock Market Lower?


Our intraday outlook is now bearish, and our short-term outlook is bearish. Our medium-term outlook remains neutral, following S&P 500 index breakout above last year’s all-time high:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): neutral

The U.S. stock market indexes were mixed between -1.8% and +0.4% on Friday, as investors were selling technology stocks and buying financial sector stocks, among others. All the main stock market indexes have reached new all-time highs on Friday. The S&P 500 index lost 0.1% following relatively volatile trading session. The broad stock market index trades just 0.6% below its new record high of 2,446.20. It has broken above week-long consolidation along 2,400 mark recently. Stocks have rebounded strongly after their mid-May quick two-session sell-off and continued their over eight-year-long bull market off 2009 lows. The Dow Jones Industrial Average has reached new record high of 21,305.35 on Friday. It failed to remain above 21,300 mark, but gained 0.4%. The technology Nasdaq Composite index lost 1.8%, closing just above 6,200 mark, as investors were broadly selling out of some important technology stocks like Apple, Amazon, Google, Facebook etc. It has managed to reach yet another new all-time high at the level of 6,341.70 before moving much lower. The nearest important resistance level of the S&P 500 index remains at around 2,440-2,450, marked by new record high, among others. On the other hand, support level is at around 2,415-2,420, marked by previous resistance level. The next support level is at 2,400-2,410, marked by the May 25 daily gap up of 2,405.58-2,408.01, among others. The support level is also at 2,390-2,395, marked by some short-term local lows. Will the uptrend continue towards 2,500 mark? There have been no confirmed negative signals so far. However, we can see some overbought conditions and negative technical divergences. The S&P 500 index is currently trading close to its November-April upward trend line, as we can see on the daily chart:

(Click to enlarge)

Negative Expectations Following Friday’s Decline, But Will Downtrend Continue?

Expectations before the opening of today’s trading session are negative, with index futures currently down 0.2-0.7% vs. their Friday’s closing prices. Investors continue to sell technology sector stocks, as the Nasdaq 100 futures trades 0.7% lower. The European stock market indexes have lost 0.1-1.0% so far. There will be no new important economic data announcements today. The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of its Friday’s late session rebound, following an overnight consolidation. The nearest important resistance level is at around 2,435-2,445, marked by Friday’s new all-time high, among others. On the other hand, support level is at 2,415-2,420, marked by recent local lows. The next support level remains at 2,400-2,410. The market trades within a short-term consolidation, as it is above the early March local high. There have been no confirmed negative signals so far. However, we can see some short-term overbought conditions, along with negative technical divergences:

(Click to enlarge)

Technology Stocks Fluctuate After Their Friday’s Sell-Off – Bottom Or Just Flat Correction?

The technology Nasdaq 100 futures contract is currently trading along the level of 5,700, following more than 200-points sell-off on Friday. We can see some increased volatility. The nearest important level of support is at around 5,660-5,680, marked by short-term local lows. On the other hand, resistance level is at 5,760-5,780, marked by previous level of support. There have been no confirmed positive signals so far. But will technology stocks continue their short-term downtrend? For now, it looks like some relatively flat correction within a downtrend off Friday’s high:

(Click to enlarge)

Concluding, the S&P 500 index continued to trade within a short-term consolidation on Friday, as it lost just 0.1% after technology stocks sell-off. Will the uptrend resume? Or is this some topping pattern before downward reversal? There have been no confirmed negative signals so far. However, we can see some negative technical divergences, along with medium-term overbought conditions.

By Paul Rejczak via Sunshine Profits


Paul Rejczak

Paul Rejczak
Stock Trading Strategist
Stock
Trading Alerts

SunshineProfits.com

Paul Rejczak

Stock market strategist, who has been known for quality of his technical and
fundamental analysis since the late nineties. He is interested in forecasting
market behavior based on both traditional and innovative methods of technical
analysis. Paul has made his name by developing mechanical trading systems.
Paul is the author of Sunshine Profits
premium service for stock traders: Stock
Trading
Alerts.

Disclaimer: All essays, research and information found above represent analyses
and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such,
it may prove wrong and be a subject to change without notice. Opinions and
analyses were based on data available to authors of respective essays at the
time of writing. Although the information provided above is based on careful
research and sources that are believed to be accurate, Paul Rejczak and his
associates do not guarantee the accuracy or thoroughness of the data or information
reported. The opinions published above are neither an offer nor a recommendation
to purchase or sell any securities. Mr. Rejczak is not a Registered Securities
Advisor. By reading Paul Rejczak’s reports you fully agree that he will not
be held responsible or liable for any decisions you make regarding any information
provided in these reports. Investing, trading and speculation in any financial
markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees
and affiliates as well as members of their families may have a short or long
position in any securities, including those mentioned in any of the reports
or essays, and may make additional purchases and/or sales of those securities
without notice.

Copyright © 2014-2017 Sunshine Profits

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Published at Mon, 12 Jun 2017 08:14:10 +0000

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Active Trader Predicts Vix Spike & Nasdaq Selloff

 

Active Trader Predicts Vix Spike & Nasdaq Selloff

By: Chris Vermeulen | Mon, Jun 12, 2017


Goldman Sachs Crashes Tech FANG Stocks!

Last Friday June 9th, 2017, Robert Bouroujerdi, a Goldman Sachs analyst, “warned that the $600 billion outperformance by the 5 biggest tech stocks known as ‘FAAMG’ — Facebook, Amazon, Apple, Microsoft and Alphabet — had contributed about 42 percent of all stock market gains over the last year. Goldman worries that the boom has created an “valuation air-pocket,” similar to the ridiculously high valuations for tech stocks during the Dot-Com boom.”

Goldman Sachs comments “market’s over-reliance on FAAMG for growth and appreciation has created positioning extremes, factor crowding and difficult-to-decipher risk narratives.”

Almost like the Dot-Com bubble, investors are piling into the tech stocks with the belief that these companies will continue to generate billions in revenues and branch out into other enterprises to drive innovation and growth. I talked about this two weeks ago; “The Fourth Industrial Revolution, which will be referred to as: Tech Hypergrowth”

(Click to enlarge)

The QQQ’s were trading at $140.15 per share last Friday, June 9th, 2017, but by afternoon, they were down $3.42 (-2.38%). Year-to-date, the QQQ’s have gained 18.29% versus an 8.75% rise in the SPX index during the same period. The heavy losses were focused and contained. It was an orderly coordinated profit taking day!

There was a sector rotation in The Dow Industrials which closed at a new high. Prior to the past year, the last two times that the Dow Jones closed at a high, while the Nasdaq sold off hard, was back in 1999 and 2007.

The Tech sector has been driving the general market yet higher since November of 2016. I keep scanning the horizons in every direction and I just cannot see anything that would trigger more than a minor correction day. Of course, a minor correction could deliver outsized impacts, given the heavy weighting of a few stocks. as well, as passive index investing.

(Click to enlarge)

Are the Financials and The Small Caps Back?

Small Cap stocks, IWM, vaulted all the way up to $139, and it has had a strong follow through on Friday, June 9th, 2017, well above $140. That is a nearly 4% move from trough to peak since Wednesday June 7th, 2017, in a dramatic “V-shaped rally” in Small-Cap stocks.

The DOJI candlestick on the breakout is a sign of INDECISION! I am currently waiting for a re-test of 138.50 before entering this trade. According to decades of studying historical seasonal chart patterns, the month of June almost always closes lower than its’ open. Its’ worst days are June 15th to June 18th. MRM Traders played TNA for the recent run up in price.

(Click to enlarge)

In the SPY, impressive asset flows have hit SPY lately, topping more than $6 billion in this move higher in the past week.

Why Stocks Keep Going Up!

Dr. Ed Yardeni discussed why:

“So far, the current bull market has marched impressively forward despite 56 anxiety attacks, by my count. They were false alarms. I remain bullish. My long-held concern is that the bull market might end with a melt-up that sets the stage for a meltdown. The latest valuation and flow-of-funds data certainly suggest that the melt-up scenario may be imminent, or underway.” Article

In the aftermath of “The Great Financial Crisis of 2017”, Global Central Banks began to buy stocks and bonds and other financial assets in very large quantities and they continue to do so! It is estimated that they will continue to buy $3.6 trillion dollars during 2017. They continue to pump up the global stock markets. This is their response in correcting the forces of past excesses. Their financial engineering may be able to keep this bubble growing bigger and bigger for many years to come. They have reached a point of no return and have no plans to unwind balances sheets.

Will the Financials Lead the Market Higher?

The banking stocks were among the beneficiaries of the tech slump, with BAC, GS and JPM all defying their head and shoulders setups at this time. The XLF, is suggesting further near-term gains for the financial sector while heading into this coming week’s FOMC meetings on June 13th and June 14th, 2017.

(Click to enlarge)

By Chris Vermeulen for Safehaven.com


Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized
market technical analyst and trader. Involved in the markets since 1997.

Chris’ mission is to help his clients boost their investment performance while
reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and
investment newsletter service. Chris is responsible for market research and
trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors
around the world. He designed an automated algorithmic trading system for the
S&P 500 index which solves his client’s biggest problem related to investing
in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades’ automated trading systems allows
individuals to investing using either exchange traded funds or the ES mini
futures contracts. It is supported by many leading brokerage firms including:

– Interactive Brokers
– Trade MONSTER
– MB Trading
– OEC OpenECry
– The Fox Group
– Dorman Trading
– Vision Financial

He is the author of the popular book “Technical
Trading Mastery – 7 Steps To Win With Logic
.” He has also been featured
on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe
Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and
dozens of other financial websites. His list of personal and professional
relationships approaches 25,000, people with whom he connects and shares
is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations
management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight
pilots license. He resides in the Toronto area with his wife Kristen and two
children.

Copyright © 2008-2017 Chris Vermeulen

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Published at Mon, 12 Jun 2017 11:18:55 +0000

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PayPal Holdings Inc.: Payment Tech’s Growth Opportunity

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PayPal Holdings Inc.: Payment Tech’s Growth Opportunity

Lucas Downey June 12, 2017

Published at Mon, 12 Jun 2017 19:40:00 +0000

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How to Trade a Summer Correction

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How to Trade a Summer Correction

By Alan Farley | June 12, 2017 — 10:10 AM EDT

The Nasdaq 100​ sold off more nearly 2.5% at the end of last week, while the Powershares QQQ Trust (QQQ) posted the highest volume day since the August 2015 mini flash crash. Those bearish metrics generated a major distribution day that’s likely to yield a summer correction, testing gains posted since the November breakout. Traders and market timers should take defensive actions as soon as possible to protect gains and prepare for opportunities triggered by sharply lower stock prices.

The tech-heavy index posted six straight months of higher prices into last week, setting off extremely overbought technical readings that may require months of profit taking to shake out complacency and set the stage for a strong 2017 close. However, it was not a typical downtrend day because a good chunk of capital exiting big winners like Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOGL) and NVIDIA Corporation (NVDA) rotated into market groups that have underperformed in recent months. (See also: The Top 4 ETFs to Track the Nasdaq.)

Let’s look at three ways to trade and survive a summer correction, with a narrow focus on aggressive risk management, shorter holding periods and well timed short sales. Countertrends​ can unfold quickly through a series of sharp down days or evolve through two-sided action that persists for weeks or months before reaching the deep lows needed to institute new long-term positions. These time-tested techniques should work with both scenarios.

Raise Cash

The over-loved and overbought technology sector now holds a large supply of weak-handed players that are likely to panic when the market heads lower because they’ve been conditioned by Wall Street to hold for the long term but don’t have the discipline to follow that advice. It is often better to be the first one out the door, raising cash that can be used for short-term trades or to buy back beloved issues at much lower prices. This follows the old trader’s wisdom to “buy ’em when they’re cryin’ and sell ’em when they yellin’.” (For more, see Tech Stocks May Be Both Cheap – and Risky.)

Don’t Try to Pick a Bottom

The Nasdaq 100 set off a weekly-scale Stochastics sell signal last week, raising the odds for bearish price action that lasts between eight and 12 weeks. It is best to avoid bottom fishing until the indicator reaches the oversold zone while concentrating firepower on relative lows that generate buy signals on the 60-minute chart. Once positioned, it’s important to sell aggressively when bounces reach short-term resistance levels that are likely to attract fresh selling pressure. Those levels also mark entry zones for carefully timed short sales that should be covered aggressively during breakdowns and wide-range sell-off days.

Play the Rotation

Banks, industrial metals, energy, retail and small caps closed Friday’s session higher or near their unchanged levels, putting a floor under the S&P 500, but it will take weeks or months for those laggards to provide steady leadership rather than hours or days. As a result, these sectors are more likely to offer well timed position trades than longer-term investments, at least through the summer months. (For more, check out Sector Rotation: The Essentials.)

Banks are best positioned to take advance of a positive rotation after a three-month decline that dropped SPDR S&P Bank ETF (KBE) into deep support at the 200-day EMA. Last week’s buying surge has already reached short-term resistance, setting up two possible trading scenarios. First, a consolidation near the April high at 44 will set off fresh buy signals if it can hold that level for one to two weeks. Alternatively, a pullback that tests the 50-day EMA at 42.50 should also be buyable, ahead of continued upside into the March high.

The Bottom Line

The Nasdaq-100 posted the highest selling volume since August 2015 on June 9, signaling the start of a summer correction that shakes out high levels of complacency. Market players that adapt quickly can take advantage of this downturn, avoiding the typical traps that can empty trading and investment accounts. (For related reading, check out Why a 10% Stock Correction May Be Good.)

Published at Mon, 12 Jun 2017 14:10:00 +0000

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Understanding the Cash Conversion Cycle

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Understanding the Cash Conversion Cycle

By Jim Mueller | Updated June 11, 2017 — 2:14 PM EDT

The cash conversion cycle (CCC) is one of several measures of management effectiveness. It measures how fast a company can convert cash on hand into even more cash on hand. The CCC does this by following the cash as it is first converted into inventory and accounts payable (AP), through sales and accounts receivable (AR), and then back into cash. Generally, the lower this number is, the better for the company. Although it should be combined with other metrics (such as return on equity and return on assets), the cash conversion cycle can be especially useful for comparing close competitors because the company with the lowest CCC is often the one with better management. In this article, we’ll explain how CCC works and show you how to use it to evaluate potential investments. (See also: What Does the Cash Conversion Cycle Tell Us About a Company’s Managment?)

What Is It?

The CCC is a combination of several activity ratios involving accounts receivable, accounts payable and inventory turnover. AR and inventory are short-term assets, while AP is a liability; all of these ratios are found on the balance sheet. In essence, the ratios indicate how efficiently management is using short-term assets and liabilities to generate cash. This allows an investor to gauge the company’s overall health.

How do these ratios relate to business? If the company sells what people want to buy, cash cycles through the business quickly. If management cannot figure out what sells, the CCC slows down. For instance, if too much inventory builds up, cash is tied up in goods that cannot be sold – this is not good news for the company. To move out this inventory quickly, management might have to slash prices, possibly selling its product at a loss. If AR is handled poorly, it means that the company is having difficulty collecting payment from customers. This is because AR is essentially a loan to the customer, so the company loses out whenever customers delay payment. The longer a company has to wait to be paid, the longer that money is unavailable for investment elsewhere. On the other hand, the company benefits by slowing down payment of AP to its suppliers, because that allows it to make use of the money longer. (To learn more, check out What Do Efficiency Ratios Measure?)

The Calculation

To calculate CCC, you need several items from the financial statements:

  • Revenue and cost of goods sold (COGS) from the income statement;
  • Inventory at the beginning and end of the time period;
  • AR at the beginning and end of the time period;
  • AP at the beginning and end of the time period; and
  • The number of days in the period (year = 365 days, quarter = 90).

Inventory, AR and AP are found on two different balance sheets. If the period is a quarter, then use the balance sheets for the quarter in question and the ones from the preceding period. For a yearly period, use the balance sheets for the quarter (or year end) in question and the one from the same quarter a year earlier.

This is because, while the income statement covers everything that happened over a certain time period, balance sheets are only snapshots of what the company was like at a particular moment in time. For things like AP, you want an average over the time period you are investigating, which means that AP from both the time period’s end and beginning are needed for the calculation. (Take a look at The Relationship Between Financial Statements to find out more.)

Now that you have some background on what goes into calculating CCC, let’s look at the formula:

CCC = DIO + DSO – DPO

Let’s look at each component and how it relates to the business activities discussed above.

Days Inventory Outstanding (DIO): This addresses the question of how many days it takes to sell the entire inventory. The smaller this number is, the better.

DIO = Average inventory/COGS per day

Average Inventory = (beginning inventory + ending inventory)/2

Days Sales Outstanding (DSO): This looks at the number of days needed to collect on sales and involves AR. While cash-only sales have a DSO of zero, people do use credit extended by the company, so this number will be positive. Again, a smaller number is better.

DSO = Average AR / Revenue per day

Average AR = (beginning AR + ending AR)/2

Days Payable Outstanding (DPO): This involves the company’s payment of its own bills or AP. If this can be maximized, the company holds onto cash longer, maximizing its investment potential; therefore, a longer DPO is better.

DPO = Average AP/COGS per day

Average AP = (beginning AP + ending AP)/2

Notice that DIO, DSO and DPO are all paired with the appropriate term from the income statement, either revenue or COGS. Inventory and AP are paired with COGS, while AR is paired with revenue. (See also: Operating Performance Ratios: Operating Cycle.)

Example

Let’s use a fictional example to work through. The data below are from a fictional retailer Company X’s financial statements. All numbers are in millions of dollars.

Item Fiscal Year 2015 Fiscal Year 2016
Revenue 9,000 Not needed
COGS 3,000 Not needed
Inventory 1,000 2,000
A/R 100 90
A/P 800 900
Average Inventory (1,000 + 2,000) / 2 = 1,500
Average AR (100 + 90) / 2 = 95
Average AP (800 + 900) / 2 = 850

Now, using the above formulas, CCC is calculated:

DIO = $1,500 / ($3,000/ 365 days) = 182.5 days

DSO = $95 / ($9,000 / 365 days) = 3.9 days

DPO = $850 / ($3,000/ 365 days) = 103.4 days

CCC = 182.5 + 3.9 – 103.4 = 83 days

What Now?

As a stand-alone number, CCC doesn’t mean very much. Instead, it should be used to track a company over time and to compare the company to its competitors.

When tracking over time, determine CCC over several years and look for an improvement or worsening of the value. For instance, if for fiscal year 2015, Company X’s CCC was 90 days, then the company has shown an improvement between the ends of fiscal year 2015 and fiscal year 2016. While the change between these two years is good, a significant change in DIO, DSO or DPO might merit more investigation, such as looking further back in time. CCC changes should be examined over several years to get the best sense of how things are changing.

CCC should also be calculated for the same time periods for the company’s competitors. For example, for fiscal year 2016, Company X’s competitor Company Y’s CCC was 100.9 days (190 + 5 – 94.1). Compared with company Y, company X is doing a better job at moving inventory (lower DIO), is quicker at collecting what it is owed (lower DSO) and keeps its own money a bit longer (higher DPO). Remember, however, that CCC should not be the only metric used to evaluate either the company or the management; return on equity and return on assets are also valuable tools for determining management’s effectiveness.

To make things more interesting, assume that Company X has an online retailer competitor Company Z. Company Z’s CCC for the same period is negative, coming in at -31.2 days. This means that Company Z doesn’t pay its suppliers for the goods that it buys until after it receives payment for selling those goods. Therefore, Company Z doesn’t need to hold very much inventory and still holds onto its money for a longer time period. Online retailers usually have this advantage in terms of CCC, which is another reason why CCC should never be used alone without other metrics. (For more, see Evaluating a Company’s Management.)

The Bottom Line

The CCC is one of several tools that can help you evaluate management, especially if it is calculated for several consecutive time periods and for several competitors. Decreasing or steady CCCs are good, while rising ones should motivate you to dig a bit deeper.

CCC is most effective with retail-type companies, which have inventories that are sold to customers. Consulting businesses, software companies and insurance companies are all examples of companies for whom this metric is meaningless. (For additional reading, check out How Should Investors Interpret a Company’s Cash Conversion Cycle?)

Published at Sun, 11 Jun 2017 18:14:00 +0000

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Industrial Metal Stocks May Have Bottomed Out

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Industrial Metal Stocks May Have Bottomed Out

By Alan Farley | Updated June 9, 2017 — 11:30 AM EDT

 Industrial metal stocks have woken up from their long slumber, led by a U.S. Steel (X) bounce that could offer profits for well-timed positions. Receding fears of a Chinese economic downturn have given copper prices a lift, underpinning an oversold bounce following the metal’s steep decline off first-quarter highs. Iron ore isn’t cooperating with the uptick, at least yet, mired in a bear market decline that’s now reached a 7-month low.

President Trump boosted weak sentiment earlier this week, outlining infrastructure initiatives that follow up on 2016 campaign promises. Political chatter could underpin the group in coming weeks, but it’s unwise to expect an advance to new highs without positive growth metrics on several continents. As a result, trading profits are likely to require well-honed risk management skills and quick exits when technical bounces run out of steam.

Even so, this recovery wave could signal a long-lasting bottom for industrial metal stocks because their high percentage declines have shaken out the majority of short-term speculators. This cleansing process should allow a healthy rotation into stronger and more patient hands that expect industrial conditions to improve slowly over the next twelve to eighteen months.

Freeport-McMoRan, Inc. (FCX) bottomed out at $3.38 when the tech bubble burst in 2000 and entered a strong uptrend that posted an all-time high at $63.62 in 2008. It plunged with world markets during the economic collapse and bounced at the same trajectory as the decline, testing the rally high in 2011. That uptick stalled with three points of resistance, ahead of a multi-wave downtrend that found support at the 2000 low in the first quarter of 2016.

The stock charged higher into the second quarter, stalling at $14.06 and dropping into a trading range, ahead of a post-election breakout that reached an 18-month high at $17.06 in January 2017. It broke down from a double top pattern in March and dropped into a descending channel that found support near the November breakout in May. The stock held a recent test at that level, ahead of an uptick that’s now testing range resistance and the 50-day EMA near $12.25.

Price action since early 2016 has held a sequence of higher highs and higher lows, keeping the long-term recovery wave intact. Meanwhile, On Balance Volume (OBV) has settled near fourth-quarter 2016 levels. All in all, this points to a shakeout of November breakout buyers, raising the potential for higher prices in coming months. The long-term positive technical tone will deteriorate if the decline reaches single digits and the October 2016 low at $9.24.

Iron ore giant Cliff’s Natural Resources, Inc. (CLF) rallied from $1.85 to $121.95 between 2003 and 2008 and plummeted during the bear market, finding support in the lower teens, The subsequent recovery wave posted outstanding percentage gains but failed to reach the prior high, rolling over into a massive double top pattern that broke to the downside in 2014. That bearish event triggered even greater selling pressure, dropping the stock into near bankruptcy.

The steep decline finally ended at a 20-year low in January 2016, ahead of a steady advance that reached double top resistance in February 2017. The subsequent pullback has cut the stock price in half while shaking out a large supply of bottom fishers. Like Freeport, it’s also held the sequence of higher highs and higher lows, requiring a selloff to $4.91 to break the long-term positive technical outlook. The relatively weaker OBV is back to mid-2016 levels and needs to turn higher right here or risk setting off a fresh batch of sell signals.

The Bottom Line

Industrial metal stocks have turned higher this week, offering hope to anxious shareholders. While additional upside is likely, a long-lasting bottom will take time some to firm, advising extreme patience for market players with long-term time horizons.

Published at Fri, 09 Jun 2017 15:30:00 +0000

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Tech Stocks Fall in Volatile End to the Week

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Tech Stocks Fall in Volatile End to the Week

By Justin Kuepper | June 9, 2017 — 4:40 PM EDT

The major U.S. indexes were mixed this week, with small-caps outperforming and tech stocks underperforming. In the tech sector, Bloomberg reported on Friday that Apple’s new iPhone might not feature a 1-gigabyte processor, which sent shares of the tech giant lower. Citron Research – a short-focused research firm – also reported that Nvidia Corp. (NVDA) shares might be overvalued and sent chip-makers lower on the day.

International markets were mixed over the past week. Japan’s Nikkei 225 fell 0.83%; Germany’s DAX 30 fell 0.06%; and, Britain’s FTSE 100 fell 0.32%. In Europe, the British pound moved significantly lower after Prime Minister Theresa May failed to win a majority in Parliament despite calling for an early election. In Asia, Japan’s first-quarter gross domestic product growth was revised lower to a 1% annual rate, which sent shares lower on the week.

The S&P 500 SPDR (ARCA: SPY) fell 0.31% over the past week. After rising to R1 resistance at $237.22 earlier this month, the index has trended mostly sideways since then. Traders should watch for a breakout from upper trend line resistance at around $245.00 to R2 resistance at $246.30 or a move lower to the pivot point at $239.65. Looking at technical indicators, the RSI remains in overbought territory at 64.51, while the MACD remains in a bullish uptrend dating back to late-May of this year.

The Dow Jones Industrial Average SPDR (ARCA: DIA) rose 0.32% over the past week. After breaking out from an ascending triangle late last month, the index has risen to its R1 resistance at $212.20. Traders should watch for a breakout to R2 resistance at $214.39 or a move lower to re-test its trend line support at around $210.00. Looking at technical indicators, the RSI appears overbought at 68.38 while the MACD remains in a bullish uptrend that appears to be moderating over the past few weeks.

The PowerShares QQQ Trust (NASDAQ: QQQ) fell 2.43% over the past week, making it the worst-performing major index. After briefly breaking out from trend line resistance, the index moved sharply lower to its pivot point at $139.67. Traders should watch for a rebound toward its trend line and R1 resistance at $143.46 or a further breakdown to S1 support at $137.49. Looking at technical indicators, the RSI moderated to a neutral 51.09, but the MACD appears on the cusp of a bearish crossover.

The iShares Russell 2000 Index ETF (ARCA: IWM) rose 1.19% over the past week, making it the best-performing major index. After breaking out from R1 resistance at $139.70, the index rose briefly to R2 resistance at $143.07 before giving up some ground. Traders should watch for a breakout from R2 resistance to new highs or a move lower to re-test R1 support at $139.70. Looking at technical indicators, the RSI appears lofty at 65.10, but the MACD remains in a bullish trend higher.

The Bottom Line

The major U.S. indexes were mixed over the past week. Next week, traders will be watching several key economic indicators including the Federal Reserve’s FOMC meeting on June 13-14, industrial production on June 15, and consumer sentiment on June 16. The market will also be keeping a close eye on the evolving political situation in the United States and the United Kingdom where leadership continues to experience difficulties.

Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.

Published at Fri, 09 Jun 2017 20:40:00 +0000

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Brexit? Trump vs. Comey? Who cares? Stocks up again

 

Brexit? Trump vs. Comey? Who cares? Stocks up again

  @lamonicabuzz

Keep calm and carry on. That’s Wall Street’s motto — despite concerns that the latest U.K. election results threaten to delay the Brexit process.

U.S. stocks rose Friday even though Theresa May’s Conservative Party lost its majority in parliament. This could make it difficult for the U.K.’s official Brexit negotiations, scheduled to start on June 19, to begin on time.

The Dow still popped about 100 points to hit a new all-time high.

The S&P 500 and Nasdaq notched records as well — although several high-profile tech stocks took a big tumble in mid-afternoon trading following a Goldman Sachs report that questioned the run in the largest tech companies.

The Goldman report focused on the five tech giants that dominate the S&P 500 and Nasdaq — Facebook(FB, Tech30), Amazon(AMZN, Tech30), Apple(AAPL, Tech30), Microsoft(MSFT, Tech30) and Google owner Alphabet(GOOGL, Tech30). The Nasdaq was down 2% in late trading Friday.

But CNNMoney’s Fear & Greed Index, which looks at seven measures of market sentiment, even briefly moved into Greed territory before shifting back to Neutral mode.

Investors are not only shrugging off any worries about a much more chaotic Brexit — and the implications that it could have on the U.K. economy and eurozone.

They are also showing no signs of concern about former FBI director James Comey’s Senate testimony about allegations that Russia tried to influence the U.S. elections to help President Trump win.

This market is like an old Timex watch. It takes a licking but keeps on ticking.

Now it’s understandable if all of this seemingly not great news has you pulling a Liz Lemon from “30 Rock.” What the what?

How can stocks continue to trudge higher in light of all of this uncertainty in the U.S. and the U.K.?

Simply put, investors are continuing to view all the political noise as just that — noise.

The bottom line is that drama in Washington and London has yet to have a negative impact on what really drives the markets — consumer and business spending.

The first-quarter earnings of companies were very strong. Corporate America notched its best growth in profits since 2011.

As long as American consumers and big U.S. multinational companies keep spending, stocks could very well go even higher.

It also helps that the Federal Reserve is likely to not raise interest rates too aggressively either.

The Fed is expected to boost rates again next week, but probably by just a quarter of a percentage point. That would leave rates in a range of 1% to 1.25% — that’s still extremely low.

Low rates should keep consumers and businesses happy — and the economy on track to grow at a decent pace.

That’s key since it’s starting to look as if Trump’s promises to boost the economy with a massive stimulus plan, tax reform and deregulation could be put on hold until next year because of the fallout of the Comey drama.

It’s true that political instability in Washington is not going away anytime soon. It’s possible that calls for Trump’s impeachment or resignation could grow louder once again.

But presidents often get too much credit (or blame) for the market and economy. The stability at the Fed has gone a long way toward placating the market.

Investors went from celebrating an expected Hillary Clinton win last summer, to cheering Trump and his pro-growth agenda, to brushing off concerns about Trump turmoil.

Why? The one constant is that Yellen is doing everything she can to keep Wall Street happy.

Trump has gone from bashing Yellen on the campaign trail to praising her for keeping rates low. He has even acknowledged there’s a chance he could reappoint her as Fed chief when her term expires next year.

Cue the Alanis Morissette. Isn’t it ironic? Don’t you think?

Published at Fri, 09 Jun 2017 18:50:58 +0000

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If You Had Invested $10,000 in the S&P, Gold, or Bitcoin in 2010…

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If You Had Invested $10,000 in the S&P, Gold, or Bitcoin in 2010…

By Nathan Reiff | June 9, 2017 — 12:35 PM EDT

Although reflective and hypothetical, it is occasionally useful to look back by several years to see how equal investments in different areas might have fared differently. For some, this is a more concrete way of seeing how different assets, currencies, and bonds might have performed as compared with one another than a comparison of growth figures. And so, if you were to have invested $10,000 in gold, the S&P 500 generally, or Bitcoin back in July of 2010, how would your money be doing in the middle of 2017?

Gold

If you invested in gold in July of 2010, your investment would have essentially stayed the same at this point. By the May 25, 2017, your investment would be worth about $10,230. Gold, seen as a safe haven asset, has generally flatlined in recent weeks and months. On one hand, gold has performed exactly as a safe haven asset should: it has maintained its dollar value. However, a closer look reveals that this is not really true. In fact, accounting for changes in the market and for inflation, gold has actually declined somewhat in value. Can it still be considered a safe haven asset?

S&P 500

A $10,000 investment in a broad array of stocks from the S&P 500 in July of 2010 would have done quite a bit better than one in gold. By May 25, 2017, you would have $26,037, according to data provided by Pension Partners. The S&P 500 has gained more attention than usual, perhaps, as hedge funds across the country have scrambled in the past few months to try to keep up with its returns. Suddenly, funds tracking the performance of the S&P appear more noteworthy than ever for that reason.

Bitcoin

A $10,000 investment in Bitcoin in the middle of 2010 would have had the highest impact by far. Your initial investment would have grown to be worth more than $309 million by late May in 2017. How is this possible? Much of those gains have been achieved in the past few weeks, actually, as Bitcoin has continued a meteoric rise in price. Still, the cryptocurrency went from being a fledgling and largely-unknown commodity in the early part of the decade to one of the most talked-about global currencies toward the end of the period. Many investors and financial experts see Bitcoin and other digital currencies as representative of a new trend in the financial world. As the earliest successful and most prominent of the cryptocurrencies, Bitcoin has garnered both the highest levels of attention and the largest investor interest, along with the most dramatic jumps in price. That being said, it’s unclear if anyone had the foresight and patience in 2010 to invest $10,000 in the fledgling currency.

Published at Fri, 09 Jun 2017 16:35:00 +0000

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Why women are better investors: study

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Why women are better investors: study

By Chris Taylor| NEW YORK

When it comes to industries, Wall Street is about as male-dominated as they come. So many people just assume that men are better investors.

And they would be wrong.

According to new data from financial services giant Fidelity Investments, women are actually superior investors. In sifting through more than 8 million investment accounts, Fidelity discovered that women not only save more than men, 0.4 percent, their investments earn more annually, also 0.4 percent.

“It is a double whammy,” says Alexandra Taussig, Fidelity’s senior vice president for women investors. “The myth that men are better investors is just that – a myth.”

Those differences may seem slight at first. But extrapolated over a lifetime of saving and investing, the disparity at retirement age is anything but minor. For a 22-year-old starting out with a salary of $50,000 a year, a woman investor will outpace her male counterpart by more than $250,000.

Even more revealing about general attitudes is Fidelity’s companion “Women and Money” survey, which asked participants which gender was better at investing its money. The outcome: Barely 9 percent of people said women.

What is it, exactly, that makes women better investors? One factor, Fidelity said, is that men are 35 percent more likely to make trades, which means that trading fees eat away at their portfolios more than they do women’s.

Women also save more in the first place – almost a full percentage point annually – in workplace 401(k)s and individual vehicles such as IRAs and brokerage accounts, Fidelity found.

Another advantage: Women assume less risk, such as not loading up entirely on equities. They also invest more in vehicles like target-date funds, whose automatic allocations make for smarter diversification, Fidelity said.

The resulting gender outperformance gibes with a study by academics Terrance Odean (University of California, Berkeley) and Brad Barber (University of California, Davis), who also found that women outperform men, by roughly 1 percent a year.

If you want to invest like a wonder woman, that means shifting to a long-term focus, saving more up front and giving up on trying to time the market with brilliant trades.

“Men regard their stock picks as a sport that comes with bragging rights, and that is what gets them into trouble,” said George Gagliardi, a financial planner in Lexington, Massachusetts.

 

(Editing by Beth Pinsker and Steve Orlofsky)

 

Published at Wed, 07 Jun 2017 17:32:35 +0000

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Ready, set, go: Retirement advice protections are here

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Ready, set, go: Retirement advice protections are here

By Mark Miller| CHICAGO

Friday is the day, folks.

Starting on June 9, all financial advisers providing guidance on retirement accounts must adhere to the new U.S. Department of Labor rule requiring that they act in your best interest rather than their own.

The controversial rule survived a bruising seven-year battle against entrenched interests in the financial services industry, which were seeking to protect excess fees that cost retirement savers $17 billion a year – a full percentage point in annual returns, according to U.S. government estimates during the Obama administration.

Most recently, the rule survived a 60-day delay by the new administration under President Donald Trump, which has considered repealing or revising it.

The Trump administration may yet try to weaken or undo parts of the so-called fiduciary standard, and several important parts of the rule are due for completion in January. These include details on adviser exemptions and disclosures that must be made to consumers.

For now, the rule has teeth. It permits consumers to sue advisers if they do not think they have met their fiduciary obligations.

What will the rule mean for retirement savers, and how can you take advantage of its protections? The following are some key issues to consider:

 

WHAT HAS CHANGED?

The fiduciary rule imposes requirements on advisers who were previously not required to act in clients’ best interest.

If you are surprised to learn that all advisers were not already required to do this, you are not alone. A survey released in April by Financial Engines, which advises workplace savers, found that 53 percent of Americans mistakenly thought that all financial advisers already adhered to a best interest standard.

Registered Investment Advisers (RIAs) are already fiduciaries; now broker-dealers and insurance company representatives will have to act in your best interest whenever tax-advantaged retirement accounts are involved. Previously, they were governed by a far weaker “suitability” standard that allowed them to sell higher-cost products that might otherwise fit your investment goals.

 

DO A CHECK-UP

If you already work with an adviser, expect to receive a contract spelling out that the relationship is now governed by the new rule and specifying that advice will be in your best interest, costs will be no more than reasonable and that no misleading statements are permitted.

The rule is limited to tax-advantaged retirement accounts – such as IRAs and 401(k) accounts – including rollovers from workplace plans to IRAs.

But do not stop there. Insist that any adviser you work with accepts fiduciary responsibility.

An easy way to separate wheat from chaff is by asking an adviser to sign the Committee’s fiduciary oath, a legally enforceable contract that commits advisers to put your interests first. (To download the fiduciary oath, click: here)

Scott Puritz, managing director of Rebalance IRA, a low-fee fiduciary advisory firm that manages retirement investments, recommends requiring any prospective adviser to provide a detailed accounting of all expenses applied to your retirement accounts, including adviser, fund, marketing and distribution and transaction costs.

Also request a detailed accounting of any one-time expenses, such as front-end loads on mutual funds plus exit or surrender penalties. You also want full disclosure of any conflicts of interest that an adviser may have that could impact her advice to you.

 

BE INFORMED

Finally, ask for a copy of the firm’s U.S. Securities and Exchange Commission Form ADV Part 2, which requires brokers to disclose the types of services provided, fee schedules, disciplinary information and any conflicts of interest.

It is also important to conduct a thorough background check on anyone you intend to hire, advises Kate McBride, former chair of The Committee for the Fiduciary Standard, a group of industry practitioners and experts.

Do a search of FINRA’s Brokercheck database (brokercheck.finra.org/), and a Google search for news on the adviser’s firm.

“Be on the lookout for firms that have paid big fines in the past five years for wrongdoing or over-charging,” McBride says. “If there are more than a handful of cases, think carefully about whether you want to use that firm.”

The Pittsburgh-based Centre for Fiduciary Excellence maintains a database of roughly 200 vetted fiduciary advisory firms around the United States that have subjected themselves to extensive audits of their investment practices and client files. (To access the free database, click here: here)

“People will spend more time looking for a contractor to fix their sinks than they do hiring an adviser,” McBride adds. “You have to do your homework.”

(The opinions expressed here are those of the author, a columnist for Reuters.)

(Editing by Lauren Young and G Crosse)

 
Published at Thu, 08 Jun 2017 12:08:40 +0000

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Is It Time to Buy U.S. Steel?

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Is It Time to Buy U.S. Steel?

By Alan Farley | June 8, 2017 — 11:55 AM EDT

United States Steel Corp. (X) shell-shocked shareholders after posting a 2-year high at $41.83 in February, cut in half in an industry-wide rout triggered by lower than expected Chinese growth and repeated delays in Trump administration infrastructure initiatives. The stock has settled near $20 in recent weeks and is working through a rounded basing pattern that could yield a tradable low

Wall Street upgrades in the last two weeks suggest the stock is back on their radar, with Credit Suisse and Standpoint Research analysts looking for higher prices in the short-term. Even so, it faces stiff resistance between $24 and $28 due to a high volume gap posted on April 26 after the company missed first-quarter profit and revenue estimates while lowering fiscal year 2018 guidance.

A pullback trade here isn’t for everyone because quick upside is unlikely, given significant overhead supply, but long-term and swing traders could benefit by entering tiered positions as short-term buy signals go off. Tight stop losses will be needed with both strategies because long-term relative strength readings still expose the stock to a trip into the mid to upper-teens.

X Long-Term Chart (1991–2017)

This old school industrial giant began trading in its current form in 1991, settling into a long-term trading range, stuck between support at $20 and resistance in the mid-40s. It broke down when the tech bubble in 2000, with the decline settling at an all-time low near $9.50 in 2003. A mid-decade uptrend posted the strongest gains in its public history, reaching an all-time high at $196 in June 2008.

The bottom dropped out during the economic collapse, dumping the stock more than 170-points in just five months. It bounced at $20.71 in November and stalled in the 40s a month later, ahead of an even lower low at $16.66 in March 2009. The subsequent recovery wave failed to alter the bleak technical landscape, reaching the upper-60s in 2010, with that level unchallenged in the last seven years.

The stock tested the 2010 high in 2011 and sold off, bouncing at the bear market low in 2013 while a lower high into 2014 got also sold, triggering a 2015 breakdown that hit an all-time low in January 2016. Price action since that time carved a multi-wave bounce that stalled near $40 in December, followed by a test that yielded a failed breakout and steep decline in May 2017.

X Short-Term Chart (2016–2017)

The rally into 2017 failed to end the 9-year string of lower highs, keeping the long-term downtrend fully intact, but the decline has now reached 6-year support that was broken in September 2015 and remounted in May 2016. It’s also flashing extremely oversold readings in several time frames, raising odds for a bounce that could generate profits for aggressively managed positions.

Price action since mid-May has congested into a symmetrical triangle centered at $20.50, with a breakout targeting the 50-day EMA, which is declining into the bottom of the May gap. That level is hiding a large supply of trapped shareholders, raising odds for violent whipsaws in or around that price zone. As a result, short-term traders should take opportune profits on a rally into that level and get out of the way. That may not be an option for long-term positions, highlighting the urgency of low average entry prices that can withstand high volatility.

The Bottom Line

U.S. Steel has reached deep support near $20 that could support a sizable bounce in coming weeks. Multiple resistance levels predict high volatility and two-sided price action once that uptick is underway, favoring quick exits for the fast-fingered crowd and a ton of patience for long term players.
Published at Thu, 08 Jun 2017 15:55:00 +0000

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What Do We Truly Know About Markets?

 

Let’s do a little exercise.

Here’s a question.  Please write down your answer to the question before reading on:

WHAT DO YOU KNOW WITH A HIGH DEGREE OF CONFIDENCE ABOUT TRADING/INVESTING THAT DOESN’T REQUIRE ANY STATISTICAL SUPPORT?


Knowledge is what has statistical support; wisdom is what we know to be true from hard-earned life experience.  What do you truly know about markets and trading?  What wisdom do you draw upon in your best trading and investing?

Once you’ve written out your answer, please compare your wisdom with the answers offered by a number of thoughtful market participants.  This blog post from Abnormal Returns has plenty of insight to inform our trading. 

Good trading is grounded in knowledge; great trading reflects wisdom.  The best market lessons are also phenomenal life lessons.  Your best trading will result from acting on your greatest wisdom.

 

Published at Tue, 06 Jun 2017 20:13:00 +0000

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Four ways retirement saving is about to change

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Four ways retirement saving is about to change

By Beth Pinsker| NEW YORK

Leaving your job soon and rolling over a 401(k) into an IRA? Thinking about buying an annuity? About to call your money manager and allocate this year’s Roth contribution?

All of these transactions and more may be different next week, after new guidance from the U.S. Department of Labor is implemented.

The so-called “fiduciary rule,” which starts on June 9, was a political football during the Obama administration and seemed doomed after President Donald Trump took office. But once set in motion, the regulation was hard to unravel, says Jamie Hopkins, Retirement Income Program co-director at the American College of Financial Services.

Starting now and rolling out in a graduated process through Jan. 1, 2018, new rules will govern how investment professionals can dole out advice involving a slew of retirement funds, including IRAs, Roths, Health Savings Accounts and Coverdell Education Accounts.

So what is a fiduciary? Someone whose recommendations for buying or selling allocations are in the client’s best interest. Plus, all compensation to the adviser has to be disclosed.

Some investors will see little change. The rules do not impact 401(k) accounts, for instance. Also unaffected are those who already have a fiduciary relationship with their financial advisers, such as those who are fee-only Certified Financial Planners.

Here are the top transactions that will be affected:

1. If your current adviser is not a fiduciary –

If you have your IRA or other retirement accounts at a major brokerage house, the person who handles your account might not be a fiduciary. This may also be true if you do not have a one-on-one relationship with an adviser, but instead use a call-in center to allocate your IRA contributions or make other changes to your investments.

Going forward, the people who answer the phone can still process the transaction, but they cannot help you decide what to do. That may also apply to your insurance agent or an accountant, if you have been using them for financial advice, says Hopkins.

2. If you are rolling over a 401(k) into an IRA –

While the new rule does not pertain to workplace retirement plans directly, if you change jobs and need a rollover, it comes into play. Anyone who is going to advise you about moving those funds into an IRA will have to be a fiduciary, says Hopkins.

3. If you are buying an annuity or life insurance –

For the most part, these transactions are not covered by the new rule, so the salesperson does not have to be a fiduciary.

“The lines are not crystal clear,” says Hopkins. If you are using funds from a retirement plan covered by the rule, the person advising you about the transaction has to be a fiduciary. There are fee-only insurance advisers who are fiduciaries, if you want to make sure you are getting an independent take on such a major purchase.

4. If you have several types of accounts at several different institutions –

IRAs are getting the most attention, but there are other tax-advantaged retirement accounts that are covered by the new rule. The people who deal with them might have a varied approach to the new rule, and each may have a different type of paperwork for you.

If you are not sure which accounts are changing and which advisers are supposed to be fiduciaries, keep asking questions.

“Always be asking for information,” says Peter Gulia, shareholder of Fiduciary Guidance Counsel, based in Philadelphia, which is an independent consulting company.

“There’s no police, no cop on the beat, no government agency. The DOL has no resources to enforce. The IRS has no resources to enforce. There is no agency looking out for consumer investor. It has to be do-it-yourself.”

 

(Editing by Lauren Young and Dan Grebler)
Published at Mon, 05 Jun 2017 16:14:30 +0000

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How Do You Warm Up For Trading?

 

How Do You Warm Up For Trading?

Notice how in most performance activities, top performers engage in warm up exercises.  Singers, musicians, athletes–all have their warm up routines.

What is your trading warm up, and are you truly warming up the functions you want to exercise?

Some time ago, I learned a simple trick for getting rid of any nervousness or tightness before giving a talk to an audience.  I showed up to the auditorium early and greeted guests as they arrived.  I chatted with them before the talk and generally had a good time.  By the time my presentation was ready to begin, I had already been speaking for a while and many people in the audience were familiar.  Exercising sociability as a warm up helped me be more engaging with my audience.

So it is with all warm ups.  We exercise the functions we most want and need to employ.  That means different warm ups for different performers.

Here are a few warm up exercises that come to mind for traders:

*  Self-awareness activities – Meditation and visualization exercises help us enter a calm, focused, self-aware state.  By warming up our self-awareness, we make it difficult to lapse into frustrated overtrading.  Reviewing journal entries to mentally rehearse our goals and how we will pursue them is an excellent self-awareness warm up.

*  Flexibility activities – I love to mentally rehearse different market scenarios as we approach the open.  The scenarios include how I would respond to early weakness or strength, what I would look for in a range or trend day, etc.  Contemplating many market possibilities helps ensure I don’t get locked into any one.

*  Aggressiveness activities – Many times the difference between a decent trading day and a great one is the ability to take enough risk when solid opportunities are present.  Pumping up with active physical exercises while mentally rehearsing aggressive trading tactics in the right situations acts as a way of priming good risk taking.

*  Creativity activities – Scanning many markets prior to the open and/or watching many stocks in premarket trading can many times serve as an alert to early influences on the market(s) we’re trading.  When we look at many things and identify commonalities, we can detect important market themes that may well persist into the trading day.  Conducting these scans in a team format, interactively, can further warm up our creative thinking.

No serious actor/actress, musician, or athlete considers going into a major performance without warming up.  Warm ups practice the functions we most want to employ.  Your trading warm up should put you in the mental, physical, and emotional state you need to be in to do your best trading.  Many, many trading problems occur simply because the right functions were never warmed up.  Your warm up should be your way of priming the functions you’re employing when you’re trading at your best.

 

 

Published at Sun, 04 Jun 2017 09:10:00 +0000

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A Technique to Supercharge Your Trading Business

 

A Technique to Supercharge Your Trading Business

Let’s say you’re a venture capitalist.  Your job is to fund promising startup businesses.  An enthusiastic entrepreneur that you have initially funded is now returning for a second round of capital.  The entrepreneur explains that the business lost a small amount of money during the initial period due to challenging market conditions.  The entrepreneur notes that some of the decisions made over that period were made out of overenthusiasm and that, going forward, investments in the business would be made in a more disciplined fashion.

That’s it.  That’s the pitch for renewed funding.  You’re the VC.  You’re thinking:  Seriously, dude, WTF?

Of course, no credible entrepreneur would expect funding with a sketchy plan that basically consisted of, “There were limited opportunities.  I was too eager and lost money, but will be more careful in the future.”  Yet many traders will continue to fund their own businesses with little more planning or foresight.

I like to frame it this way:  If someone asked *you* to invest in a trading business and then described to you results that matched your own, a work ethic that you display, and a planning process that mirrors yours, would you choose to invest in that other person’s trading business?  

My hunch is that the answer in all too many cases would be no.  Yet we will invest our own time, effort, and money with little more forethought.

There is a planning process that I have found extremely useful in my recent work with traders.  It consists of a monthly review of all facets of trading.  The review includes a daily P/L summary and performance metrics, such as average win size, average loss size, win rate per trade and per day, breakdown of P/L by strategies and trade types, etc.  The review also flags the greatest winning and losing trades of the month, for quick identification of what went right and wrong.  The monthly review also summarizes:

  • Sources of opportunity during the month – An assessment of how well the trader took advantage of that opportunity;
  • Sources of risk and threat during the month – An assessment of how well the trader navigated those;
  • Goals that were worked on during the month – An assessment of progress and areas of improvement still outstanding;
  • Readjustments to make further improvement toward previous goals – New, daily strategies to improve trading 
  • Anticipated opportunity during the coming month – Goals and daily strategies to be employed in the coming month to monetize that opportunity;
  • Anticipated risks during the coming month – Goals and daily strategies to be employed in the coming month to minimize those threats;
  • Self management during the past month – Assessment of how well the trader stayed in peak performance mode;
  • Improvements to be made in self-management in the coming month – Goals and strategies to improve self management in the coming month;
  • Progress on research and development made in the past month – Progress that you’ve made in researching and implementing new trading strategies;
  • Changes in your research and development and new initiatives to be implemented in the coming month New efforts you are planning for the coming month to find and trade fresh sources of opportunity and how you will pursue them on a daily basis.

In other words, the monthly review is a thorough update of an annual business plan.  Conducting the reviews monthly allow active traders sufficient time to detect meaningful patterns in trading, but are also sufficiently frequent to ensure mid-course corrections when progress is lagging.  The monthly review can be reviewed by mentors, coaches, and valued colleagues for ideas and suggestions.  It becomes the backbone for daily goal setting and daily work on trading.

Imagine two traders:  One writes about the past day’s trading in a journal and sets mental goals for the coming day.  There is little score-keeping and little coordinated carryover of goals from one day and week to the next.  The second trader works from a comprehensive annual business plan and implements that with all-encompassing monthly reviews.  Those reviews focus daily efforts and ensure that each day entails work on the goals set in the review. 

Who is more likely to grow over time?  Whose growth is most likely to compound month over month, creating exponential growth?

Great advice for any trader:  Run the kind of trading business you would want to fund if someone else came to you with the opportunity.

Great advice for any trading firm:  Run the kind of business that only funds comprehensive business plans and rigorous review processes.

 

Published at Sat, 03 Jun 2017 12:39:00 +0000

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