All posts in "Investing"

Stocks Give Up Ground Amid Slowing Job Growth


Stocks Give Up Ground Amid Slowing Job Growth

By Justin Kuepper | Updated April 7, 2017 — 6:22 PM EDT

The major U.S. indexes moved largely lower over the past week, as a better-than-expected manufacturing report early in the week was offset by lower-than-expected employment data. Non-farm payrolls rose just 98,000 in March – compared to a consensus of 175,000 – although investors were comforted by a sharp 0.2% drop in the unemployment rate and strong job gains in the manufacturing sector that drives middle-class spending. Of course, the Syrian air strike has also weighed on the market as concerns mount over Trump’s long-term plans.

International markets were mixed over the past week. Japan’s Nikkei 225 fell 1.3%; Germany’s DAX 30 fell 0.71%; and, Britain’s FTSE 100 rose 0.31%. In Europe, the Eurozone reported its best period of economic activity since the 2011 sovereign debt crisis with HIS Markit’s survey reaching a six-year high. In Asia, investors will be anxiously watching President Trump’s meeting with Chinese President Xi Jinping that began on Thursday in Mar-a-Lago where the two are likely to discuss trade policy and North Korea.

The S&P 500 SPDR (ARCA: SPY) fell 0.23% over the past week. After moving off of its 52-week high, the index has been hovering around its pivot point at $135.54. Investors should watch for a rebound toward R1 resistance at $239.48 or a breakdown from its 50-day moving average at $233.82 to S2 support at $227.87. Looking at technical indicators, the RSI recovered but remains neutral at 51.17, while the MACD remains in a bearish downtrend that dates back to early March — although it could see a bullish crossover in the near-term.

The Dow Jones Industrial Average SPDR (ARCA: DIA) rose 0.02% over the past week, making it the best-performing major index. After moving off its 52-week high, the index has traded in a narrow range just below its pivot point at $207.11. Traders should watch for a rebound to R1 resistance at $210.41 or a breakdown below its 50-day moving average at $205.46 to S2 support at $199.74. Looking at technical indicators, the RSI appears neutral at 49.22 while the MACD remains in a bearish downtrend that could soon reverse.

The PowerShares QQQ Trust (NASDAQ: QQQ) fell 0.31% over the past week. After briefly touching trend line and R1 resistance at $133.61, the index has traded sideways just above its pivot point at $131.51. Traders should watch for a breakout to R2 resistance at $134.85 or a move below trend line support to S1 support or its 50-day moving average at $129.64. Looking at technical indicators, the RSI appears a bit lofty at 59.79 while the MACD remains in bearish territory but could see a bullish crossover.

The iShares Russell 2000 Index ETF (ARCA: IWM) fell 1.42% over the past week, making it the worst-performing major index. After briefly rising above its pivot point, the index moved lower to nearby its lower trend line support. Traders should watch for a breakout toward the upper end of its price channel at $142.00 or a breakdown lower to S2 support at $128.72. Looking at technical indicators, the RSI appears neutral at 47.68 while the MACD remains depressed, but could see a bullish crossover in the near-term.

The Bottom Line

The major U.S. indexes moved largely lower over the past week with the exception of the Dow Jones Industrial Average that posted a modest gain. Most indexes have neutral technical indicator readings, which provides few hints as to future price movements. Next week, traders will be several economic indicators including Janet Yellen’s speaking engagement on April 10, consumer sentiment on April 13, and retail sales data on April 14. Investors will also be closely monitoring the situation in Syria for signs of escalation.

Note: Charts courtesy of As of the time of writing, the author had no holdings in the securities mentioned.
Published at Fri, 07 Apr 2017 22:22:00 +0000

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How To Trade Realized Volatility


How To Trade Realized Volatility

by THE MOLEAPRIL 6, 2017

I wonder what thoughts were triggered in your head when you saw the featured image above. The notion of a brewing storm is rather ominous and usually is associated with inconvenience, discomfort, and sometimes outright destruction of property. But I chose it very carefully to make a point which I’ll try to convey below. Let’s look at some charts:


In case you are new here, the indicator on the bottom of this chart is a slightly altered version of the ATR with a simple Bollinger slapped on top of it. When creating it the intent was to visualize discrete cycles of realized volatility (RV), which I subjectively believe it does fairly well. If nothing else it does show us the wide range that RV can take and how it affects price movements.

The little boxes I drew on the chart highlight periods in which volatility had slowed down considerably, thus producing a very narrow Bollinger bubble. Chartists often refer to this as a ‘pinched Bollinger’ and the associated rule is that an expansion of the underlying is at hand. Since we are measuring realized volatility we are thus looking at moments in time that depict abnormally high contraction of RV (i.e. the ‘pinch’), which in many (but not all) cases results in an expansionary cycle. So far so clear.

What often is forgotten however is that realized volatility (RV), unlike implied volatility (IV), is agnostic to direction, it only cares about velocity (remember: average true range). While IV represents the expectation of future volatility RV shows us the volatility that already has happened in the past. And since the vast majority of traders or investors view rising prices as a positive and falling prices as a negative rising IV is associated with the anticipation of falling prices. Meanwhile RV is a direct derivative of price and as such happily swings in both directions. Which means a drop in price will have (almost) the same impact on RV than falling prices. I said almost because in order to make it the same you would have to normalize the price series but that’s a topic for another day

When a storm arrives we are often inconvenienced as for example driving in ‘bad weather’ makes things more dangerous for us. But let’s not forget that there’s nothing inherently ‘bad’ about rain and wind in, in particular if it presents itself in relative moderation. Flowers and plants for example wouldn’t pollinate and grow for one and without rain we would be forced to drink saltwater and that’s no fun.

Now there is a reason for my lengthy treatise on volatility and its analogy to weather. Because when I suggest that a storm may be brewing then my inference is not that prices may necessarily fall. It’s easily possible that we are going to see a resolution to the upside, of course most likely not without luring a few bears into placing bets to sweeten the pot a little. Noblesse oblige.

If you take another look at the chart above you will see that the very last box I drew on the very right is also the most rectangular. What does that mean? It means that RV contracted on the E-Mini to a historically low level and remained in that range for an extended amount of time. Not surprisingly that contraction accompanies the juicy rally we enjoyed all the way until my leave to Tenerife. Once again sorry for having spoiled the party.

What Comes Next?

Expansion, which is what we already have been perceiving over the past month. You may also have noticed that the current Bollinger bubble, although being in the process of expanding, continues to be positioned relatively low in comparison with at least the past year of pricing action. Which bodes the question: do the odds support a rise or a further drop and thus a renewed contraction? Just like you I don’t have a crystal ball but at least the limited sample size shown on the chart points toward expansion. And that expansion may actually come in the form of a spike higher followed by a fast drop lower, or the inverse. We. Just. Don’t. Know. But what we do know are our trading and system rules and they should tell us that realized volatility demands a adjustment in stop and campaign management. For me personally that means WIDER stops and SMALLER position size, which incidentally are mutually dependent – see for yourself.

But there is more and we’ve only touched the surface…


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Properly interpreting realized volatility can lead you to placing better discretionary trades and/or develop more effective systems tailored to exploit specific price behavior. What should have become clear now is that the underlying characteristics of various price series can differ substantially. Nevertheless it is rare to find discussions on this most basic attribute of price propagation in popular trading books or tutorials, the one big exception being the quant sector (for obvious reasons). Short of spending the next 15 years studying to become a quant trader I hope that this post will help you read your charts more effectively going forward.
Published at Thu, 06 Apr 2017 13:42:07 +0000

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Bezos is selling $1 billion of Amazon stock a year to fund rocket venture

Amazon and Blue Origin founder Jeff Bezos addresses the media about the New Shepard rocket booster and Crew Capsule mockup at the 33rd Space Symposium in Colorado Springs, Colorado, United States April 5, 2017. REUTERS/Isaiah J. Downing


Bezos is selling $1 billion of Amazon stock a year to fund rocket venture

By Irene Klotz| COLORADO SPRINGS, Colo. founder Jeff Bezos said on Wednesday he is selling about $1 billion worth of the internet retailer’s stock annually to fund his Blue Origin rocket company, which aims to launch paying passengers on 11-minute space rides starting next year.

Blue Origin had hoped to begin test flights with company pilots and engineers in 2017, but that probably will not happen until next year, Bezos told reporters at the annual U.S. Space Symposium in Colorado Springs.

“My business model right now … for Blue Origin is I sell about $1 billion of Amazon stock a year and I use it to invest in Blue Origin,” said Bezos, the chief executive of Inc (AMZN.O) and also the owner of The Washington Post newspaper.

Ultimately, the plan is for Blue Origin to become a profitable, self-sustaining enterprise, with a long-term goal to cut the cost of space flight so that millions of people can live and work off Earth, Bezos said.

Bezos is Amazon’s largest shareholder, with 80.9 million shares, according to Thomson Reuters data. At Wednesday’s closing share price of $909.28, Bezos would have to sell 1,099,771 shares to meet his pledge of selling $1 billion worth of Amazon stock. Bezos’ total Amazon holdings, representing a 16.95 percent stake in the company, are worth $73.54 billion at Wednesday’s closing price.

For now, Kent, Washington-based Blue Origin is working toward far shorter hops – 11 minute space rides that are not fast enough to put a spaceship into orbit around Earth.

Blue Origin has not started selling tickets or set prices to ride aboard its six-passenger, gumdrop-shaped capsule, known as New Shepard.

The reusable rocket and capsule is designed to carry passengers to an altitude of more than 100 miles (62 km) above the planet so they can experience a few minutes of weightlessness and see the curvature of Earth set against the blackness of space. Unmanned test flights have been underway since 2015.

At the symposium, Bezos showed off a mockup of the passenger capsule, which sports six reclined seats, each with its own large window. Also on display was a scorched New Shepard booster rocket that was retired in October after five flights.

Like fellow tech entrepreneur Elon Musk, founder and chief executive of SpaceX, Bezos says that reusability is the key to cutting the cost of space flight. Last week, SpaceX re-launched a rocket for an unprecedented second mission to put a spacecraft into orbit.

“The engineering approach is a little different, but we’re very like-minded,” Bezos said of Musk.

Blue Origin is developing a second launch system to carry satellites, and eventually people, into orbit, similar to SpaceX’s Falcon 9 and Dragon capsule.

Development costs for that system, known as New Glenn, will be about $2.5 billion.

There is no estimate yet for how much Bezos will invest overall on Blue Origin. But Bezos has indicated he will spend what it takes.

“It’s a long road to get there and I’m happy to invest in it,” Bezos said.

According to Forbes magazine, Bezos has a net worth of $78 billion.


(Reporting by Irene Klotz; Editing by Leslie Adler)
Published at Thu, 06 Apr 2017 01:35:12 +0000

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Is NVIDIA Topping Out?

by NeuPaddy from Pixabay

Is NVIDIA Topping Out?

By Alan Farley | April 4, 2017 — 12:20 PM EDT

NVIDIA, Corp. (NVDA) outperformed major indices and the broad tech universe in 2016, more than tripling in price to a lofty high in triple digits. However, the stock has struggled since the calendar flipped to January and is now trading in the red for 2017. The sideways pattern carved since December could signal a major top, but it’s too early for short sellers to do victory laps because remaining bulls are fighting hard to reinstate the uptrend.

Stocks that lead the market in one year often lag badly in the following year, following the long-held market wisdom that the bigger the move, the broader the base. In this incarnation, NVDA’s bullish long-term story remains fully intact but may be discounted in the current stock price, raising odds it will head into an intermediate correction that tests last year’s outsized gains.

NVDA Long-Term Chart (1999-2017)


The company came public at $1.83 (post four splits) in January 1999, right at the height of the tech bubble. It established support just below $1.40 and took off in a strong uptrend that continued into the January 2002 high at $24.22, ahead of a steep decline that coincided with the final and most brutal phase of the bear market. Selling pressure finally ended in October at a 3-year low, just one point above the 1999 low.

The stock carved a double bottom reversal into 2005 and took off in a strong trend advance, lifting in multiple rally waves that reached $39.67 in October 2007, right at the bull market top. It held up relatively well during the 2008 economic collapse, losing more than 80% of its value but holding above the 2002 and 2004 lows. A two-legged recovery into 2011 came up short, stalling at the 50% bear market retracement level in the mid-20s.

Volatility and interest then died, dropping price into a 15-point range that persisted for more than four years, ahead of an enthusiastic rally driven by growing interest in virtual reality gaming technologies. The stock exploded through resistance at the 2007 high in May 2016 and went parabolic, lifting in a high volume uptick that posted minor pullbacks into its December high at $119.93.

NVDA Short-Term Chart (2015-2017)


The stock eased into a shallow uptrend in 2012, with the weak angle of attack continuing into July 2015 when price rate of change began to escalate. It rallied above the 2011 recovery high in October, setting off a round of buying signals, but the broad market decline into the first quarter of 2016 limited gains until February when it ejected into a market-leading breakout and trend advance.

A Fibonacci grid stretched across the 2016 rally places a continuation gap at the 50% level, raising odds the uptrend has now come to an end. More importantly, a February breakout attempt failed, triggering a decline that eventually found support in the mid-90s while the subsequent bounce got sold aggressively at the 50-day EMA. This increases danger substantially because a selloff to the red line will now complete a bearish head and shoulders top, with a measured move target at $70.

On Balance Volume (OBV) tracked price higher in 2016, signaling major institutional and retail sponsorship. It peaked in December and failed to post a new high in February, even though the stock hit an all-time high at $120.92. The indicator is now pointed lower, but there’s no evidence that shareholders are abandoning ship or taking profits. This marks a two-edged sword because, while offering a tailwind, it also denotes a huge supply of bagholders if the stock breaks support.

The Bottom Line

NVIDIA is trading in the red for 2017 after failing two attempts to break resistance at $120. Price action during this period has drawn the outline of a potential topping pattern, telling observant market players to focus on price action in the mid-90s, where head and shoulders neckline support may determine the stock’s long-term fate.

Published at Tue, 04 Apr 2017 16:20:00 +0000

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Down But Not Out

Down But Not Out

by THE MOLEAPRIL 4, 2017

It seems everything made a u-turn yesterday which of course affected our campaigns across the board. Let’s review the damage but instead of licking our wounds we’re actually going to use this as another valuable lesson in tape reading. That’s right – when sudden events knock you on your ass then learning from the experience is mandatory.


Copper didn’t play ball and I wound up taking the express elevator to the woodshed. But there’s a lot more here to see than just a stop out. If you direct your attention to the daily panel you’ll see that the tape was coiled up to the max after literally months of highly volatile churn. The long setup presented was the single best opportunity for copper to finally escape the trading range and turn all that volatility into something productive.

But it was not to be and although the bullish scenario cannot be completely counted out just yet the odds just decreased quite a bit and leave the door open for even more sideways churn. Buyers as well as sellers are on notice here and that leaves us without a clear direction. So at this point all we have left is highly volatile sideways tape. Which is excellent for nimble range traders of course.


The E-Mini is in better shape but the weakness we saw yesterday now needs to be recovered pronto or sellers may cease the opportunity to introduce a fast and painful leg to the downside which would most likely bring us to near 2285. Once again we are seeing less direction and increasing intra-day volatility which suggests we may be looking at a medium term top.


Crude also took it on the chin but miraculously yesterday’s sell off missed my trailing stop by a few ticks. And given the current snap back this would have been extra annoying. So far so good however. Clearly this contract has had its own share of volatility which has a tendency of trapping buyers as well as sellers in endless gyrations and then suddenly blast off in the opposite direction. We got a very lucky entry here last week and thus my expectations forward are (and should be) low.


Soybeans is not a contract we have been trading but since this is a tape reading lesson I definitely wanted to present it here. I often mentioned how futures contracts have a knack for picking a direction and never looking back. The daily panel clearly shows this type of behavior throughout its recent history.

For trend traders this is great news because a failure of support (or resistance) can turn into a very juicy contrarian campaign. A great opportunity, which I missed as I was on vacation, presented itself in March when daily support near the lower Bollinger gave way and resulted in a systematic long squeeze which continues to this day. The point of recognition of course was the spike low near 990 which up to this moment had looked like perfect support for staging a long campaign.

When the inverse, i.e. a breach of the SL, happened however the odds pretty much flipped on a dime and the rest is history. I have often presented binary campaigns, meaning a long and short entry at the same time, for this very reason. Some junior reason have sometimes joked that I could not be proven wrong this way. But missed the point for the very reasons explained above. Sometimes price finds itself at an inflection point where a few ticks separate high odds of a short resolution from similar odds of a long resolution. This is a great example of exactly such a binary situation and what transpired when ‘conditions on the ground’ changed in an instant. If you have ever served then I am sure you are familiar with that very phrase.

A few more goodies below the fold – we are looking at a swing trading example and I posted an update on a very important development I covered yesterday:


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Published at Tue, 04 Apr 2017 13:57:10 +0000

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5 Steps to a Retirement Plan


5 Steps to a Retirement Plan

By Arthur Pinkasovitch | Updated April 4, 2017 — 6:00 AM EDT

Basic guidelines exist to assist people in creating their retirement plans. These guidelines can either form the basis of a self-directed retirement investment strategy or can be used to help guide the investment process of an external financial professional. (For more, see our tutorial:Retirement Plans.)

1. What Is Your Time Horizon?

You current age and expected retirement age create the initial groundwork of an effective retirement strategy. First, the longer the time between today and retirement, the higher the level of risk that one’s portfolio can withstand. If you’re young and have 30-plus years until retirement, you should have the majority of your assets in riskier securities like stocks. Though there will be volatility, over long time periods stocks outperform other securities, like bonds.

Additionally, you need returns that outpace inflation so that you can not only grow your money in total, but also against your future purchasing power. (Bonds have actually outperformed stocks in the past 10 years. To read more, see: Get This: Bonds Beat Stocks After All.)

In general, the older you are, the more your portfolio should be focused on income and capital preservation. This means a higher allocation in securities like bonds, which won’t give you the returns of stocks, but will be less volatile and will provide income you can use to live on.

You also will have less concern about inflation. A 64-year-old who is planning on retiring next year does not have the same issues about inflation as a much younger professional who has just entered the workforce.

“Inflation is like an acorn. It starts out small, but given enough time can turn into a mighty oak tree. We’ve all heard – and want – compound growth on our money. Well, inflation is like ‘compound anti-growth,’ as it erodes the value of your money. A seemingly small inflation rate of 3% will erode the value of your savings by 50% over approximately 24 years. Doesn’t seem like much each year, but given enough time it has a huge impact,” says Christopher Hammond, financial advisor and founder of in Savannah, Tenn.

Third, although it is typically advised to begin planning for retirement at a younger age, younger individuals are not expected to perform the same type of due diligence regarding retirement alternatives as someone who is in his or her mid-40s.

Also, you should break up your retirement plan into multiple components. Let’s say an older parent wants to retire in two years, pay for her child’s education when he turns 18 and move to Florida. From the perspective of forming a retirement plan, the investment strategy would be broken up into three periods: two years until retirement (contributions are still made into the plan); saving and paying for college; and living in Florida (regular withdrawals to cover living expenses). A multi-stage retirement plan must integrate various time horizons along with the corresponding liquidity needs to determine the optimal allocation strategy. You should also be rebalancing your portfolio over time as your time horizon changes.

Most important, start planning for retirement as soon as you can. You might not think a few bucks here or there in your 20s mean much, but the power of compounding will make that worth much more by the time you need it. (The future may seem far off, but now is the time to plan for it. Check out 5 Retirement Planning Rules for Recent Graduates.)

2. What Are Your Spending Requirements?

Having realistic expectations about post-retirement spending habits will help you define the required size of the retirement portfolio. Most people argue that after retirement their annual spending will amount to only 70% to 80% of what they spent previously. Such an assumption is often proved to be unrealistic, especially if the mortgage has not been paid off or if unforeseen medical expenses occur.

“In order for retirees to have enough savings for retirement, I believe that the ratio should be closer to 100%,” says David G. Niggel, CFP®, Key Wealth Partners, LLC, in Lancaster, Pa. “The cost of living is increasing every year – especially healthcare expenses. People are living longer and want to thrive in retirement. Retirees need more income for a longer time, so they will need to save and invest accordingly.”

Since, by definition, retirees are no longer at work for eight or more hours a day, they have more time to travel, go sightseeing, shopping and engage in other expensive activities. Accurate retirement spending goals help in the planning process as more spending in the future requires additional savings today.

“One of the factors – if not the largest – in the longevity of your retirement portfolio is your withdrawal rate. Having an accurate estimate of what your expenses will be in retirement in so important because it will affect how much you withdraw each year and how you invest your account. If you understate your expenses, you easily outlive your portfolio, or if you overstate your expenses, you can risk not living the type of lifestyle you want in retirement,” says Kevin Michels, CFP®, financial planner with Medicus Wealth Planning in Draper, Utah.

The average life span of individuals is increasing, and actuarial life tables are available to estimate the longevity rates of individuals and couples (this is referred to as longevity risk). Additionally, you might need more money than you think if you want to purchase a home or fund your children’s education post-retirement. Those outlays have to be factored into the overall retirement plan. Remember to update your plan once a year to make sure you are keeping on track with your savings.

“Retirement planning accuracy can be improved by specifying and estimating early retirement activities, accounting for unexpected expenses in middle retirement, and forecasting what-if late retirement medical costs,” Alex Whitehouse, AIF®, CRPC®, CWS®, president and CEO, Whitehouse Wealth Management, in Vancouver, Wash.

3. What After-Tax Rate of Return Do You Need?

Once the expected time horizons and spending requirements are determined, the after-tax rate of return must be calculated to assess the feasibility of the portfolio producing the needed income. A required rate of return in excess of 10% (before taxes) is normally an unrealistic expectation, even for long-term investing. As you age, this return threshold goes down, as low-risk retirement portfolios are largely comprised of low-yielding fixed-income securities.

If, for example, an individual has a retirement portfolio worth $400,000 and income needs of $50,000, assuming no taxes and the preservation of the portfolio balance, he or she is relying on an excessive 12.5% return to fund retirement. A primary advantage of planning for retirement at an early age is that the portfolio can be grown to safeguard a realistic rate of return. Using a gross retirement investment account of $1,000,000, the expected return would be a much more reasonable 5%.

Depending on the type of retirement account you hold, investment returns are typically taxed. Therefore, the actual rate of return must be calculated on an after-tax basis. However, determining your tax status at the time you will begin to withdraw funds is a crucial component of the retirement planning process.

4. What Is Your Risk Tolerance and What Needs Have to be Met?

Whether it’s you or a professional money manager who is in charge of the investment decisions, a proper portfolio allocation that balances the concerns of risk aversion and return objectives is arguably the most important step in retirement planning. How much risk are you willing to take to meet your objectives? Should some income be set aside in risk-free Treasury bonds for required expenditures?

You need to make sure that you are comfortable with the risks being taken in your portfolio and know what is necessary and what is a luxury. This is something that should be seriously talked about not only with your financial advisor, but also with your family members.

“Don’t be a ‘micro-manager’ who reacts to daily market noise,” advises Craig L. Israelsen, Ph.D., designer of 7Twelve Portfolio in Springville, Utah. “‘Helicopter’ investors tend to over-manage their portfolios. When the various mutual funds in your portfolio have a bad year – add more money to them. It’s kind of like parenting: The child that needs your love the most often deserves it the least. Portfolios are similar: The mutual fund you are unhappy with this year may be next year’s best performer – so don’t bail out on it.”

“Markets will go through long cycles of up and down and, if you are investing money you won’t need to touch for 40 years, you can afford to see your portfolio value rise and fall with those cycles. When the market declines, buy – don’t sell. Refuse to give in to panic. If shirts went on sale, 20% off, you’d want to buy, right? Why not stocks if they went on sale 20% off?” says John R. Frye, CFA, chief investment officer, Crane Asset Management, LLC, in Beverly Hills, Calif.

5. What Are Your Estate Planning Goals?

Estate planning will vary over an investor’s lifetime. Early on, matters such as powers of attorney and wills are necessary. Once you start a family, a trust may be something that becomes an important component of your financial plan. Later on in life, how you would like your money disbursed will be of the utmost importance in terms of cost and taxes. Working with a fee-only estate planning attorney can assist in preparing and maintaining this aspect of your overall financial plan,” says Mark Hebner, founder and president, Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

Life insurance is also an important part of the retirement-planning process. Having both a proper estate plan and life-insurance coverage ensures that your assets are distributed in a manner of your choosing and that your loved ones will not experience financial hardship following your death. A carefully outlined will also aids in avoiding an expensive and often lengthy probate process. Though estate planning should be part of your retirement planning, each aspect requires the expertise of different experts in that specific field.

Tax planning is also an important part of the estate-planning process. If an individual wishes to leave assets to family members or to a charity, the tax implications of either gifting the benefits or passing them through the estate process must be compared. A common retirement-plan investment approach is based on producing returns that meet yearly inflation-adjusted living expenses while preserving the value of the portfolio; the portfolio is then transferred to the beneficiaries of the deceased. You should consult a tax advisor to determine the correct plan for the individual.

The Bottom Line

Retirement planning should be focused on the aforementioned five steps: determining time horizons, estimating spending requirements, calculating required after-tax returns, assessing risk tolerance vs. needs for portfolio allocation, and estate planning. These steps provide general guidelines regarding the procedures required to improve your chances of achieving financial freedom in your later years. The answers to many of these questions will then dictate which type of retirement accounts (defined-benefit plan, defined contribution plan, tax-exempt, tax deferred) are ideal for the chosen retirement strategy

One of the most challenging aspects of creating a comprehensive retirement plan lies in striking a balance between realistic return expectations (for example, few retirees today have a defined-benefit pension) and a desired standard of living. The best solution for this task would be to focus on creating a flexible portfolio that can be updated regularly to reflect changing market conditions and retirement objectives.
Published at Tue, 04 Apr 2017 10:00:00 +0000

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Three Tech Stocks to Buy for the Second Quarter


Three Tech Stocks to Buy for the Second Quarter

By Alan Farley | March 31, 2017 — 12:30 PM EDT

The Nasdaq-100 led broad benchmarks in the first quarter, driven higher by widely held tech stocks that underperformed through most of 2016. While the most popular plays have rallied into lofty levels that could trigger sizable second quarter pullbacks, secondary tech names could gain traction as market players take profits and look for lower-risk buying opportunities.

Fiber optics, semiconductors and software providers look like sweet spots in the hunt for second-quarter tech winners but it’s hard to make bad choices because the rising market has been floating all boats. Even so, first-quarter earnings season is likely to shake out a few bad apples so keep one finger on the exit button until your new positions prove their worth with solid results.


Linux software provider Red Hat, Inc. (RHT) beat fourth-quarter revenues while guiding fiscal year 2018 above consensus in this week’s earnings confessional, triggering a 4-point gap and high percentage rally to a 17-year high at $87.91. It’s been filling the gap while testing new support near $84.50 in the last three sessions and should bounce soon in a healthy follow-through rally.

The uptick has finally confirmed a breakout above the 50% retracement level of the 2000 to 2002 bear market decline between $151 and $2.40, opening the door to the .618 retracement in the mid-90s. Price action between that level and triple digits will likely attract selling interest in a two sided tape, so keep stops tight until the stock trades comfortably above $100. Once settled above that level, it can set its sights on the much larger challenge of rallying into the high.


Apple, Inc. (AAPL) supplier Analog Devices, Inc. (ADI) broke out above the 2004 high at $52.37 in 2015 and tested new support for more than 18-months, ahead of a strong trend advance that reached with 22-points of the 2000 all-time high at $103. The rally stalled in the lower 80s in mid-February, giving way to a narrow trading range that’s still in force as we head into the second quarter.

The slow grind is approaching intermediate support at the 50-day EMA, with round number 80 likely to trigger a bounce that tests the February high at $84.24. More dynamic upside may wait until the stock mounts the 4-month rising trendline (blue line), currently near $87. At that point, a momentum crowd could choose to buy high and sell higher, triggering a vertical rally into triple digits and a major test at the 17-year-old high. The company reports earnings on May 18.


Flir Systems, Inc’s (FLIR) technological and military orientation offers a twin benefit to market players, given the Trump administration’s commitment to higher defense spending. It stalled just above $37 in 2011 at the tail end of a 2-year recovery wave and failed a breakout attempt at that level in 2014. The stock returned for a third visit at the end of 2016 and dropped into a sideways pattern that’s holding close to that resistance level.

This coiling action predicts a multiyear breakout that tests the 2008 all-time high at $45.49. The sky’s the limit once that level gets mounted, favoring a rapid advance that could offer outsized gain to well-timed long positions. Early trade entry ahead of a breakout makes perfect sense because the narrow trading range supports relatively tight stop losses in case of an unexpected downturn. The company reports earnings on April 26.

The Bottom Line

Big tech stocks have led the first quarter advance, with the most widely held names now overbought and in need of multiweek pullbacks. This technical positioning should generate a rotation into second tier sector components that have attracted less public attention than their more popular peers.
Published at Fri, 31 Mar 2017 16:30:00 +0000

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Beyond jobs, car sales to give insight on consumer health


By Rodrigo Campos| NEW YORK

Forget the jobs report. The most interesting bit of U.S. economic data next week is Monday’s auto sales release, which will offer a measure of the middle-class consumer and a sector of the stock market that has had a rough ride so far in 2017.

Economists are looking for another solid month of sales north of 17 million new vehicles at a seasonally adjusted annualized rate for March but nothing like the 18.4 million hit in December, the highest since August 2005.

The number would however point to a third consecutive decline on a 12-month rolling basis. With sales peaking and prices set to drop, the secondary effects are expected to be felt beyond car makers and dealers.

Lease and used-vehicle prices are expected to fall sharply this year, according to Ally Financial, which cited its estimate earlier this month when it lowered its 2017 profit forecast.

Morgan Stanley said in a Friday note used-car prices could tumble between 25 and 50 percent by 2021, with both new cars and off-lease supply hitting record highs this year.

“There’s an avalanche of used cars ready to hit the market place,” said Brad Lamensdorf, co-manager of the AdvisorShares Ranger Equity Bear ETF.

According to Lamensdorf, the need to move inventory has translated into reckless lending. “It’s not fraudulent, but people are up to their neck in debt,” he said. “Default rates are going to be much more significant.”

The stock market is taking note. The S&P 1500 automotive retail index .SPCOMAUTR is down 6.5 percent year to date, with Advance Auto Parts (AAP.N), AutoNation (AN.N) and Sonic Automotive (SAH.N) down double digits in 2017.

Carmax (KMX.N), which reports earnings on Thursday, is seen as a bellwether in the used-car industry. Its stock is down 8 percent so far this year.

Another red flag from the sales floor: the average number of days a new vehicle sat before being retailed hit 70 in the first 19 days of March according to a note from J.D. Power and LMC Automotive. That is the highest since July 2009.

With the market tightening, industry insiders expect more price cuts.

“The competitiveness of the industry continues to be evident in ever-rising incentive levels,” said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power in a note.

“Incentives will reach a new high for the month of March.”

At the same time, competition to finance loans is likely to further increase credit risk for auto lenders, Moody’s Investors Service said this week.

Ally Financial stock (ALLY.N) fell 9.6 percent in March.

Even the challenge to General Motors (GM.N) this week from a hedge fund, aimed at boosting a lagging stock price, reflects the concern that the industry is hoarding cash without significant prospects for growth.


The market for autos, however important, is not as big a part of the U.S. economy as the housing market was when its collapse in 2008 triggered the sharpest recession since the Great Depression.

However, and taking into account all the moving parts of the industry’s supply chain, a halt in the auto sector could strain an economy that is already eight years into a recovery cycle. And it would hurt blue-collar workers the most.

If a jump in auto loan defaults materializes, there is also the risk that consumers will shut their wallets and hurt economic growth, two-thirds of which depends on consumer spending.

“When you look at how consumers are spending there is a question mark if the less-than-prime buyer is suddenly having issues,” said Ian Winer, head of equities at Wedbush Securities in Los Angeles.

“The spillover effect is: what other industries are also using rather aggressive financing in order to get revenue? Jewelry and mattresses jump out at me as two big examples.”

Tempur Sealy shares (TPX.N) have fallen 32 percent year to date.

(Additional reporting by Nick Carey and Joe White; Editing by James Dalgleish)
Published at Sat, 01 Apr 2017 00:56:45 +0000

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Maybe The Recovery Wasn’t Real After All

By sannalotta from Pixabay

Maybe The Recovery Wasn’t Real After All

By: John Rubino | Sat, Apr 1, 2017

For a while there it looked like the US and its main trading partners had
finally achieved escape velocity. Growth was up, inflation was poking through
the Fed’s 2% target, and most measures of consumer
were bordering on euphoric.

Then it all started to evaporate. Lackluster manufacturing and consumer spending
reports sent the Atlanta
Fed’s reading of Q1 GDP
off a cliff to less than 1%:

Evolution of Atlanta Fed GDPNow

And this morning the Wall Street Journal highlighted some recent changes in
the yield curve that point towards further slowing:

Yield Curve in 2017 Shows Growth Concern Lingers

Long-term Treasury yields have declined modestly, while short-term yields
have risen.

A flattening of the Treasury yield curve in 2017 is a worrying sign for
investors banking on resurgent U.S. inflation and growth.

Long-term Treasury yields, which are largely driven by the U.S. economic
and inflation outlook, have declined modestly this year, following a sharp
rise in the wake of the November election of Donald Trump as president. The
10-year U.S. Treasury yield has fallen to 2.396% from 2.446% at the end of

At the same time, short-term yields, which are more influenced by monetary
policy, have risen in 2017 as Federal Reserve officials have made clear that
they expect to continue raising the fed-funds rate through the rest of the

As a result, the yield premium on the 10-year note relative to the two-year
note—known in the market as the 2-10 spread—slipped Wednesday to 1.107 percentage
points, its lowest level since the election.

While the yield curve, like all market indicators, is subject to the ebb
and flow of investor sentiment, economic data and political developments,
a flattening yield curve gets special attention from investors world-wide
because it can serve as an early signal of both economic slowing and overpricing
in riskier asset classes.

Those concerned that U.S. share prices were getting ahead of themselves
took note in the first quarter when they “started to see the flattening of
the yield curve,” said David Albrycht, president and CIO of Newfleet Asset
Management, the fixed-income affiliate of Virtus Investment Partners . The
Dow industrials have fallen 2% since hitting a record of 21115 on March 1.

Though economic data in the first quarter were mixed, many investors believe
the flattening of the curve is the result of the unwinding of “Trump trade”
bets that inflation and growth would pick up imminently with the adoption
of tax cuts and fiscal stimulus President Donald Trump has promised. Hopes
of a so-called reflationary agenda have been set back by the defeat in Congress
of a White House sponsored health-care bill. That raised questions about
whether Mr. Trump can get other legislation through Congress.

Expectations for higher long-term yields and a steeper curve rested on two
pillars: first, that the economy on its own was showing signs of improvement,
and second, that it would get an extra lift from promised tax cuts, infrastructure
spending and regulatory relief.

At the outset of the second quarter, both of those pillars are still standing,
yet neither is looking as sturdy as before.

The Journal goes on to note that the spreads between Treasuries and junk bonds
are widening, which indicates growing fears of a slowdown-induced credit crunch.
And that junk bond issuance is soaring, which implies a desire on the part
of sub-investment-grade borrowers to raise cash while they can.

What’s happening? There are several possibilities:

1) There never really was a recovery. The post-election pop was, as the Journal
asserts, just the human nervous system responding to a “new and improved”
US government the way grocery store shoppers instinctively reach for boxes
that promise a better version of an old stand-by. Now that the novelty has
worn off, the markets are experiencing a “same corn flakes, different box”
let-down. In which case 1% – 2% growth might be the ceiling, and debt/GDP will
continue to soar world-wide. Make no mistake, this is an epic worst-case scenario.

2) Oil spiked in 2016, which led many to conclude that the global economy
was growing because it was demanding more energy. But then crude gave back
most of its gains, extinguishing the previous optimism and causing economic
indicators like consumer spending to stall (because we’re all paying a bit
less for gas lately). So risk-off: sell stocks and junk bonds, buy Treasuries.
It’s no more complicated than that.

Crude Oil Futures 1-Year Chart

3) No one has the slightest idea what’s happening as insane levels of debt
distort the models economists use to predict the future. From here on out,
it’s unpleasant surprises all the way down.

Time will tell, but door number 3 is an increasingly safe bet.

John Rubino


John Rubino

John Rubino edits and has authored or co-authored five
books, including The Money Bubble: What To Do Before It Pops, Clean
Money: Picking Winners in the Green Tech Boom
, The Collapse of the Dollar
and How to Profit From It
, and How to Profit from the Coming Real Estate
. After earning a Finance MBA from New York University, he spent the
1980s on Wall Street, as a currency trader, equity analyst and junk bond analyst.
During the 1990s he was a featured columnist with and a frequent
contributor to Individual Investor, Online Investor, and Consumers Digest,
among many other publications. He now writes for CFA Magazine.

Copyright © 2006-2017 John Rubino

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Published at Sat, 01 Apr 2017 15:46:59 +0000

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Stocks Move Higher as Risks to the Rally Mount (SPY, DIA)


Stocks Move Higher as Risks to the Rally Mount (SPY, DIA)

By Justin Kuepper | Updated March 31, 2017 — 4:14 PM EDT

The major U.S. indexes moved higher over the past week, as of late Friday afternoon, driven by improving economic conditions and earnings growth. Final fourth-quarter gross domestic product (GDP) readings came in above expectations at 2.1% thanks to a 3.5% increase in consumer spending. Jobless claims also fell by 3,000 to 258,000 in the latest weeks, which is near their lowest level in decades. However, investors remain concerned about an increasingly uncertain political climate with the healthcare bill and intelligence investigations.

International markets were mixed over the past week. Japan’s Nikkei 225 fell 1.78%; Germany’s DAX 30 rose 2.06%; and, Britain’s FTSE 100 rose 0.07%. In Europe, Eurozone sentiment edged lower but remained strong in March as inflation expectations remain high. In Asia, Japan’s economy has witnessed higher factory output and a low jobless rate, but household spending remains soft, and consumer inflation was flat after removing the effect of rising energy costs – a development that could complicate the Bank of Japan’s policy actions.

The S&P 500 SPDR (ARCA: SPY) rose 0.94% over the past week, as of Friday afternoon. After rebounding from its 50-day moving average at $232.99, the index reached midway towards its R1 resistance at $239.21. Traders should watch for a move to R1 resistance levels or a renewed move downward to re-test its 50-day moving average or pivot point at $232.52. Looking at technical indicators, the RSI recovered but remains neutral at 55.72, while the MACD remains in a bearish downtrend that dates back to early March.

The Dow Jones Industrial Average SPDR (ARCA: DIA) rose 0.38% over the past week, as of Friday afternoon. After briefly touching its 50-day moving average at $204.65, the index rebounded toward its trend line resistance. Traders should watch for a move to R1 resistance at $211.33 or move lower to re-test its 50-day moving average and pivot point at around $204.21. Looking at technical indicators, the RSI appears neutral at 49.35, but the MACD remains in a bearish downtrend since early March.

The PowerShares QQQ Trust (NASDAQ: QQQ) rose 1.41% over the past week, as of Friday afternoon. After rising past its R1 resistance at $131.92, the index lost some steam towards the end of the week on its move to R2 resistance. Traders should watch for an extended rally to R2 resistance at $134.09 or a move lower to its lower trend line and 50-day moving average at $128.83. Looking at technical indicators, the RSI appears overbought at 66.53, but the MACD could experience a bullish crossover over the near-term.

The iShares Russell 2000 Index ETF (ARCA: IWM) rose 2.56% over the past week, as of Friday afternoon. After breaking through its pivot point and 50-day moving average at $136.53, the index is moving toward its upper trend line resistance. Traders should watch for a breakout from R1 resistance at $140.41 or a move lower to re-test its pivot point. Looking at technical indicators, the RSI appears slightly overbought at 57.24, but the MACD witnessed a bullish crossover that could signal a trend reversal.

The Bottom Line

The major U.S. indexes moved higher over the past week with mixed momentum readings from the MACD indicator. Next week, traders will be watching several key economic indicators including manufacturing data on April 3, FOMC minutes on April 5, jobless claims on April 6, and of course, employment data on April 7. Political developments out of the White House could also have an impact on the market as the risk of disruption of the status quo has been elevated.

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

Published at Fri, 31 Mar 2017 20:14:00 +0000

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Building Your Trading Resilience


Building Your Trading Resilience

Resilience is the ability to encounter a setback and quickly resume forward movement.  The resilient trader doesn’t allow losses in the morning to prevent good trading in the afternoon; losses in one day to turn into poor trading the next day.  Resilience requires belief in oneself and one’s processes, and it requires the ability to look at the setback and ask, “What is this trying to teach me?”

Much of resilience is having other, positive things to fall back upon when one part of our life is not going well.  It’s much easier to absorb trading losses when we are fulfilled by family life and enjoy physical health, friendships, and meaningful personal pursuits.  A great test of a trader is to see how they perform after a poor trading day or week.  Do they become impulsive and lose discipline, trying to make the money back?  Do they become fearful and miss good opportunities?  Do they double down on preparation and learn from what they could do better?Here are several articles pertinent to resilience and maximizing positive experience when trading.  These will be helpful in that part of trading preparation in which you prepare yourself for the trading day:


Published at Sat, 01 Apr 2017 13:03:00 +0000

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How To Trade Break Out Formations


How To Trade Break Out Formations

This is going to be a bit of quickie as I find myself short on time ahead of the opening bell. But if you have been around the block a few times then you know that quickies can be quite fun. And we both you know you’re easy!

Today’s formation on the E-Mini is a great study piece as it paints a textbook break out formation which often can successfully be leveraged as an entry opportunity. For some reason however many retail ratlings seem to repeatedly be missing out as they are unsure as to where exactly to enter. Let’s set the stage:


Quite frankly this is as textbook as it comes. Clearly what we have here is a touch of the lower 25-day SMA, which at first sight looked like weak technical context and thus was not suggested as an entry opportunity by yours truly earlier this week. Nevertheless I’m already positioned long since Monday after a speculative entry signal courtesy of the Zero indicator (you ARE a sub right? If not read this).

As a sidenote, since then I have received several inquiries as to whether it is too late to go long here and/or if I am still holding my position. Answers: NO, and YES – so rejoice!

Now I can already hear your little rodent brain rattling. “Is this a good entry opportunity?”, “Is it too late to enter?”, “Do I wait for a retest lower?”, “Do I wait for a breach of the recent spike high?”.

And here are the respective short answers: YES, NO, YES, YES.

I can understand how this may be confusing to you and I promise I’ll explain this in exhausting detail below – in the subscriber section. Sorry I cannot give it all away for free as the lair doesn’t run itself and those damn sharks in our moat need a new set of laser beams.


Now if that ticks you off then this will most likely push you over the edge. Here’s an update on our copper entry from last Tuesday. And yes it was (drum rolls) posted to the subscriber only section. Well we were hoping for a drop toward 2.62 and actually snagged it – just barely. By the way as a rule if you’re not being filled after a quick spike below your threshold then it’s usually okay to chase it up a few ticks. Yes, it may come back down and you missed a better fill but often you wind up missing out on a good campaign, especially on thinner contracts like HG. For me entry thresholds are ranges – not exact price points.

Anyway, let’s advance our trailing stop to < 2.653 – be generous – you  know make that < 2.65. We are now in very good shape here and don’t want to get shake out too early.


Still here? Well, then how about crude, which I didn’t get a fill on but I’m sure that some of the subs did. And what a beauty it has turned into. If you’re long this puppy then move your stop to < 48.27, which is the most recent spike low.

Alright, here’s the solution to today’s puzzler in all its glory:


It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

So which one do you pick? Well actually you can run with all three scenarios and this way scale yourself into the position slowly. In case you missed it – I wrote a pretty nice post on the subject which shows you the math involved. Have fun but keep it frosty.

Published at Thu, 30 Mar 2017 13:48:22 +0000

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What is the difference between positive and normative economics?


What is the difference between positive and normative economics?

By Amy Fontinelle | Updated March 29, 2017 — 6:10 PM EDT

A: Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved. Normative economic statements are opinion based, so they cannot be proved or disproved.

While this distinction seems simple, it is not always easy to differentiate between the positive and the normative. Many widely-accepted statements that people hold as fact are actually value based.

For example, the statement, “government should provide basic healthcare to all citizens” is a normative economic statement. There is no way to prove whether government “should” provide healthcare; this statement is based on opinions about the role of government in individuals’ lives, the importance of healthcare, and who should pay for it.

The statement, “government-provided healthcare increases public expenditures” is a positive economic statement, as it can be proved or disproved by examining healthcare spending data in countries like Canada and Britain, where the government provides healthcare.

Disagreements over public policies typically revolve around normative economic statements, and the disagreements persist because neither side can prove that it is correct or that its opponent is incorrect. A clear understanding of the difference between positive and normative economics should lead to better policy making if policies are made based on facts (positive economics), not opinions (normative economics). Nonetheless, numerous policies on issues ranging from international trade to welfare are at least partially based on normative economics.
Published at Wed, 29 Mar 2017 22:10:00 +0000

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Critical Fibonacci Extensions May Mark End Of Trump Rally


Critical Fibonacci Extensions May Mark End Of Trump Rally

By: Chris Vermeulen & John Winston | Wed, Mar 29, 2017

Our research is showing critical Fibonacci extensions are in place for US
Major Markets that may be foretelling of a massive market correction. Part
of our research is to search for and study events and resources that are a
bit abstract. One component of this research is to identify critical price
levels and early warning triggers from abstract price data. The major US indexes
and most individual all showing price advanced over the past years and many
are showing extended price rallies since the US Presidential election on November
8, 2017. Yet, none are as foretelling as our “US Custom Index”.

The INDU is showing a price advance equal to a 1.8765 Fibonacci expansion.
The SPX500 is showing a price advance equal to a 1.9165% Fibonacci expansion.

What is the relevance of these expansions? Many Fibonacci retracements and
expansions fail near a n.875 ~ n.9231. Now, you may be asking, “why should
I be concerned about failure at these levels?”. The answer is simple, one of
the most important components of Fibonacci analysis is an abstract theory regarding “Failure
to Succeed or Failure to Fail”. Another very important component of Fibonacci
theory is that “price is always attempting to establish new highs or lows”.
How this relates to our understand of what to expect in the future depends
on expectations that are presented by understanding Fibonacci ratios, price
projections and simple key components of the Fibonacci theory.

Without going into too much detail, “Failure to Succeed” is the failure to
match or meet expected price objectives or actions. “Failure to Fail” is the
ability of price/trends to exceed expectations or objectives and extend beyond
expected target levels. Again, price is always attempting to establish new
highs or lows within Fibonacci theory. Therefore, success or failure at critical
levels means price should attempt to either reverse or extend.

As you are probably well aware, we have been expecting an increase in the
VIX to coincide with extensive major market volatility between March 15th and
April 24th. So far, the VIX has jumped form the March 15th low over 41%. You
can read more about this by reviewing THE
. Our analysis, originated in late January, and warns of an
extreme potential for massive price movements across the globe. This all depends
of a number of factors correlating to prompt these expected swings, but so
far, everything we predicted is starting to happen.

VIX Chart

Weekly VIX Chart

This next chart of the NAS100 Index shows a number of key components at play.
First, the 2.618% Fibonacci expansion level is currently providing strong resistance.
Additionally, it shows a series of price cycle bottoms that originate from
2014 & 2015 price lows. Lastly, it shows current price highs are also lining
up on a 1.50% Fibonacci Expansion from the recent price rotation illustrated
by the last red rectangle on the chart. One should pay attention that the two
red rectangles are copies of one another and illustrate that price rotation
has been in nearly identical volatility ranges since the end of 2014. Only
after the US Presidential election was price able to breakout of these ranges
and extend to current levels.

Further, the arcing analysis on the chart represents Fibonacci vibrational
price analysis. It is designed to show us where and when price may break out
of or into new trends/channels. As you can see, the arcs align relatively well
with price activity and price has recently extended beyond the most recent
arc level on the right edge of the chart.

Combine all of this analysis into a simple message, one would likely resolve
the following : Current Fibonacci price extensions are providing clear resistance.
Price cycles state we should establish a new price low near April 24th and
price has recently extended beyond a vibrational cycle that coincides with
Fibonacci resistance. Historical price ranges show us that June 5th, 2017 may
begin a new price trend cycle

NAS100 Chart

NASDAQ100 Chart

The “key” in terms of our analysis and understanding of the current market
setup is seen on our US Custom Index. This custom index is made up of key components
of the US Economy (US Retail, Real Estate, Consumer Finance, Consumer Discretionary
and the SPY). The reason we have selected these for our index is we believe
they relate a broad scope of “early movers” as related to the overall health
of the US economy. In other words, this custom index should relate early strength
or weakness in the relation to general US economic activities rather well.

This chart is showing a number of key components, but most important is the
YELLOW line near the top which represents a near EXACT 1.272% expansion of
price from recent highs set in 2007 (2.272 % expansions from the lows in 2009).
The n.272 Fibonacci expansion levels, like most other Fibonacci expansion levels
prompt one of two possible outcomes; a. Price congestion followed by further
advance, or b. a moderately deep price retracement (often greater than 25%
of the recent move).

This chart, as we stated earlier, is the “key to understand the potential
of and expectations of all of this analysis. With the VIX expected to “spike”
between now and April 24th, the NAS100 chart showing massive expansion (2.618)
that is correlating with recent 1.50% resistance and key vibrational resistance
and, this Custom Index, pivoting off of critical 1.272% Fib Expansion, near
the beginning of our expected VIX expansion, near Fibonacci Vibrational levels
on April 10th and near the lower range of a multi-year historical Standard
Deviation channel, we are preparing for an immediate potential price rotation
(correlating with a spike in the VIX) that may drive equity prices down to
near 2016 lows (a drop of potentially 15~20%).

Custom Index Chart

Custom Index Chart

Our analysis is showing that many key elements of cross market analysis are
aligning to warn that we may see a moderate term end to the “Trump rally” and
a relatively deep retracement that could shake the markets. We are not predicting
a 2009 style crash. We are, although, expecting healthy market rotation that
will setup additional opportunities for traders to identify profitable trades.

At this point in time, we wanted all of our readers to be aware of the multiple
correlations that support our analysis and the fact that volatility is set
to start rising. Keeping this in mind, we are positioning ourselves and our
clients to take advantage of these expected moves and we will continue to monitor
the markets price action to take advantage of opportunities as they form.

If you want know more of our unique Momentum Reversal Method
(MRM) and our trade setups, please visit to
learn more.

Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems

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, 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
– 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

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

Copyright © 2008-2017 Chris Vermeulen

John Winston

John Winston,
Chief Investment Strategist
Active Trading Partners

John Winston

John Winston, Chief Investment Strategist of Active Trading
is a recognized industry expert who specializes in providing financial advisors,
hedge funds and individual traders with accurate market forecasts and trading
opportunities. John’s mission is to bring a unique combination of relevant
market news, experience, and dynamic crowd behavioral trading ideas.

Prior to Active Trading, He spent years studying human behavioral
patterns, fundamental analysis, Fibonacci retracements, and Elliott wave patterns.
He knows investors love to chase stocks up and by doing so, they increase their
risk without knowing it. And that the crowd loves to sell low and buy high,
John attempts to do the opposite.

Chris Vermeulen of met
John in late 2008 as the financial crisis was unfolding. After numerous months
of following the trading profits of and methodologies that John employs now
at ATP, Chris suggested that a joint venture be formed and we offer this service
to a select group of partners (subscribers).

Over a 23 year period, John learned how to consistently profit from investor
behavior outperforming the market in both bull and bear market cycles. These
strategies have become the foundation for his premium Stock and ETF trading
alert service.

Copyright © 2017 John Winston

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Published at Wed, 29 Mar 2017 10:44:59 +0000

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Morgan Stanley Back to November Breakout Level


Morgan Stanley Back to November Breakout Level

By Alan Farley | March 28, 2017 — 3:31 PM EDT

Old school investment house Morgan Stanley (MS) stood at ground zero during the 2008 economic collapse but lived to tell the tale, grinding out a less vigorous recovery than rival Goldman Sachs Group, Inc. (GS). To illustrate, it’s trading at an 8-year high after breaking out with the financial sector following the November election but needs another 30-points to reach the 2007 high. Contrast this performance deficit with Goldman, which recently rallied to an all-time high.

Recent sector weakness is starting to take its toll, dropping the stock down to November support in a selling wave could signal the start of an intermediate correction. And there’s no guarantee that dip buyers will come to the rescue in coming months because Congressional tax reform legislation will trigger much lower stock prices if their efforts fail to translate into statute.

MS Long-Term Chart (1993-2017)


The stock came public at $6.64 (post three splits) in February 1993 and eased into a trading range, with support at $6.50 and resistance at $9.50. It held those narrow boundaries into a 1995 breakout that gathered momentum into the July 1998 high at $40.47. The near collapse of Long-Term Capital Management due to the Asian Contagion undermined financial sector sentiment at that time, triggering a steep decline that cut the stock price in half into October.

It returned to the prior high in 1999 and broke out, taking off in a vertical advance that reached an all-time high at $91.31 in September 2000. It lost ground through the rest of the bear market, bottoming out in the upper-20s in October 2002 and turning higher in a recovery wave that failed at the .786 Fibonacci selloff retracement level in July 2007. A historic decline then followed, dropping the stock more than 60-points to a 14-year low at $10.15 in October 2008.

A bounce into 2009 stalled in the mid-30s, yielding a 2-year downtrend that posted a higher low in August 2012. Committed buyers then stepped in, lifting price in a steady uptrend that stalled at a 6-year high in the low-40s at the end of 2014. An August 2015 test at that level attracted aggressive sellers, triggering a decline that reached a two-year low in early 2016, while the subsequent recovery wave posted a fresh 8-year high in February 2017.

The monthly Stochastics oscillator has eased into a precarious position, lifting into the overbought level in October 2016 and crossing into a bearish cycle that will yield a long-term sell signal when it crosses back through the black line. The stock is already testing new support at $40, generated by the November rally, and could fail the breakout in conjunction with a bearish crossover. In turn, that has the power to dump price into deep support at the 200-month EMA at 31.

MS Short-Term Chart (2015–2017)


The 2015 decline unfolded in two major selling waves that reached the low-20s in February 2016. A Fibonacci grid stretched across the rally waves into 2017 organizes price action, with a rate of change escalating rapidly after the stock lifted above the 50% retracement level. It posted just a single consolidation pattern between the low-30s and upper-40s, raising odds for a steeper slide if it fails to hold support at the 2015 high (blue line).

On Balance Volume (OBV) topped out in June 2015 and entered a distribution wave that continued into the second quarter of 2016, long after the February reversal. Heavy accumulation from that time into the first quarter of 2017 eliminated the deficit, lifting the indicator to a new high while signaling a bullish convergence that confirms the November breakout. This volume support should limit the downside during a correction.

The Bottom Line

Morgan Stanley turned lower after posting an 8-year high on March 1, losing ground for nearly four weeks in a selling wave that could signal the start of an intermediate correction. The November breakout is at immediate risk because the rally cleared that level by just 7-points while the recent decline has given up an equal number, bringing new support into play.
Published at Tue, 28 Mar 2017 19:31:00 +0000

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How do you calculate return on equity (ROE)?


How do you calculate return on equity (ROE)?

By Ryan C. Fuhrmann, CFA | Updated March 28, 2017 — 5:55 PM EDT



Return on equity (ROE) is a ratio that provides investors with insight into how efficiently a company (or more specifically, its management team) is managing the equity that shareholders have contributed to the company. Below is some insight into how to calculate it.Basic ROE

To get to the basic ROE formula, the numerator is net income, which is the bottom-line profits reported on a firm’s income statement. Free cash flow (FCF) is another form of profitability and can be used in lieu of net income.

The denominator for ROE is equity, or more specifically shareholders’ equity. Shareholders’ equity is assets minus liabilities on a firm’s balance sheet and is the accounting value that is left for shareholders should a company settle its liabilities with its reported assets.

ROE then becomes: Net income ÷ shareholders’ equity

Another Calculation for ROE

ROE can also be determined when knowing a firm’s dividend growth rate (g) and earnings retention rate (b). The calculation is as follows:

ROE = g ÷ b

The dividend growth rate can either be estimated by an analyst or an investor, or can be based on a historical dividend growth rate, such as over the past five years or decade. The earnings retention rate can also be a prospective or historical figure and is simply:

1 – dividend payout ratio.

The dividend payout ratio is the percentage of a firm’s net income (or free cash flow) paid out to shareholders as dividends.

Putting it all Together

The ROE of the entire market (as measured by the S&P 500) has averaged in the low to mid-teens in recent years and recently hovered around 12.5% in 2016. A critical component of looking at individual companies is to compare their ROEs with the market as a whole and other rivals.

For instance, at the end of fiscal year 2016, consumer product giant Procter & Gamble Co (PG) reported net income of $10.5 billion and total shareholders’ equity of $57.34 billion. PG’s ROE as of 2016 therefore is:

$10.5 billion ÷ $57.34 billion = 18.33% which exceeds the market’s level and the consumer goods industry average of just below 11% at that time.

This means that for every dollar of shareholders’ equity, P&G generated 18 cents in profit i.e. common equity investors saw an 18.33% return on their investment.

The Bottom Line

ROE is one of the most important metrics for evaluating management effectiveness. There are a couple of key ways to calculate it and use it to compare a firm to its competitors and the market in general.

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The Ultimate Guide On Raw Edge Discovery

The Ultimate Guide On Raw Edge Discovery

by THE MOLEMARCH 27, 2017

Earlier today the GoldGerb asked me how to put together a scatter plot for raw edge discovery as introduced to you by Scott during my Tenerife adventure. Since my gums and I are feeling a bit better than anticipated I thought I may as well condense some of the exchanges I’ve had with him into a dedicated post. It is my belief that raw edge discovery (or RED as it shall be known henceforth) is an integral but much neglected aspect of system development.

When done correctly RED can not only potentially help you avoid months and perhaps even years of wasted time. It will also lead to a cleaner and more solid system whilst helping you develop a deeper understanding of what actually drives your system’s edge. Finally it will allow you to establish baseline from which you are able to evaluate additional parameters or rules and avoid over optimization. It doesn’t do your laundry or wash your car but if you’re a system developer then RED is your starting point when considering a new trading idea.

Like Scott already pointed out in his original post the visualization we will use is a scatter plot, which is easy to do in Excel. There are many tutorials out there [1][2] and Google is your friend. But before we launch Excel or your favorite charting app you first have to go back to first principles and develop a hypothesis. Just like a scientist.

Scott and I looked at a heap of mean reversion systems and the hold time basically boils down to only a few bars. On average only 2 – 3 days. For example here’s Larry Connors’ hypothesis: For stocks in a bull market, trading above their 200 SMA, there is a mean reversion effect.

Raw Edge Discovery – RED

So how should we test this?

First we look at the change of price leading up to the entry condition. Doesn’t matter what exactly your entry conditions are, even if it’s something complicated like:

  • 1) The stock is a member of the Russell 1000 (at the time, not today eliminating – survivorship bias which is huge)
  • 2) Minimum daily liquidity requirement
  • 3) 70% of the stocks in the market trading > SMA(200)
  • 4) The individual stock trading > its SMA(200)
  • 5) A down move defined in different ways (see next list below)
  • 6) A volatility filter (VIX or VIX equivalent below x)

In reference to item 5) this is one of the most complicated mean reversion thing we’ve seen, ever, but a couple of useful takeaways:

  • A close below lower 1.0/20 bollinger
  • 3 lower lows (i.e. a Net-Line Buy Level [NLBL] forms at the high of the first candle)
  • 5 lower closes
  • RSI(2) < 10
  • ROC (3)  low

So you throw all these conditions together. It’s not curve fitting (yet) at this stage, but it *might be*, so don’t go crazy with the rules. Then you make your best guess of the timeframe for the entry condition. In mean reversion systems it is pretty trivial:

  • X axis: delta 3 days before (in percent)
  • Y axis: delta 3 days after (in percent).

By the way this is just a best guess. You could do a few best guesses maybe 3 days, 5 days, etc. In reality in most cases 3 days will turn out your sweet spot but prove me wrong. Of course if you’re building an hourly trading system then you’d be testing against +/- 3 or 5 hours.


Here’s an example of just that produced by Francis – an intrepid reader who took one for the team and volunteered to run the numbers on our Net-Line concept across a few daily charts. The scatters he produced show us a pretty weak positive edge. So what have we learned? At least on the daily panel on their own without additional context single Net-Lines appear to be astonishingly useless as an entry system. Which incidentally is the very reason why I rarely if ever use Net-Lines without additional context such as SMAs, Bollingers, or other even other Net-Lines.

Now a fundamental point I hope you fully comprehend moving forward is that RED only shows you what the market does after your entry condition has been triggered. It has absolutely nothing to do with your future trading system.

The R squared value you’ll get from your scatter is a measure of how strong this effect is, which is effectively how close the dots are to making a line (i.e. how bunched up the dots). If you are looking for mean reversion for example you should be seeing a nice diagonal line.

Bullpucky Testing

So how do you know if you are fooling yourself? After all, if you tested pretty much any half decent MR system on AAPL then you’ll be looking pretty clever. Buying down closes on AAPL will look great on a 10 year backtest. Does that mean your raw edge is real?

  1. Firstly you test on Russell, and then SP500 and Wiltshire 3000 participants. Results should be a forest of good results not just an outlier. Ditto for testing foreign markets. All the good mean reversions test well across countries, e.g. the Nikkei, the Hang Seng, the DAX, etc.
  2.  Secondly you make sure you have statistically significant numbers of data points, in terms of standard error. But for any given set of data the scatter plot will be orders of magnitude (literally) more reliable than a backtest in proving or disproving your hypothesis. That’s how you make your best guess against curve fitting.

After you have proven your hypothesis, then and ONLY then do you start playing around with different exits and actual system stuff.

Back Testing

If your scatter shows you at minimum a weak positive correlation – congrats,  you are now ready for back testing. The gold standard is to take out some data you didn’t use to build your system on, you optimize as little as possible, and then run your new rules over the data you set aside. Don’t just throw 20 rules at your system from the get-go – start small and build it up rule by rule. The fewer rules the better. A system’s quality and resilience come via simplicity and not by adding complexity. The closer your optimized system backtest matches your ‘out of sample data’ backtest, the less you have fooled yourself.

So for example, lets say we built a system on “Buy 7 days down in AAPL, sell a 7 day high close“. That would test amazing, but if we tested the same thing across random out of sample data it would most likely suck. A classic way is to take the Russell 1000 for example, and keep out every 50th stock alphabetically. Don’t use that data at all for your backtests, but when you finish up your system building you run your system against those 50 stocks. The closer the match the less the curve fit, by definition. That’s not to say market type won’t change, but it does prove you haven’t succumbed to data snooping biases.

By the way all this is *really* easy to do with quantopian which we’ll cover in much detail in future articles of this educational series. Now before you recoil in horror at the thought of writing code keep in mind that even Convict Scott could figure it out, and he can barely program his way out of a paper bag.

So to make it easier for you guys, for daily MR systems there are ONLY three really viable entry methods.

  1. Entry a few minutes ahead of close – standard
  2. A.k.a. the Nick Radge: Limit order .5 ATR(14) below last close. We are going for more extreme, and therefore better mean reversion.
  3. Entry following open (generally this one is not as good)

If your system is positive on all three entry methods then it is a lot less likely to be curve fitted. Again this should be a good number in a forest of good numbers. The idea is once you prove the hypothesis to a standard you are happy with, you play with entries and exits until you get something close enough. Then again you run your fledgling new system on:

  • Out of sample data
  • Other indexes in the same market
  • Other stock markets in other countries.

If you still see good numbers (which is rare to be honest) then you can be fairly confident that you aren’t fooling yourself with randomness (hat tip to Nassim). Once again Scott and I both believe that the research environment in quantopian is ideal for this stuff, which is why I am working toward posting a pertinent introduction a few weeks from now. May be something we’ll do after May so that you guys don’t go away

Shameless Plug

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Credits go to Scott Phillips who contributed large parts of this post

Published at Mon, 27 Mar 2017 16:34:03 +0000

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Coaching Yourself for a Better Trading Psychology


 Coaching Yourself for a Better Trading Psychology

Thanks once again to the good folks at, who hosted the recent webinar on techniques for changing your trading psychology.  The recording of that session is now up on YouTube.  I appreciate Mike, Terry, and crew making that available for those who could not attend live.  We had over 250 attendees and many more questions than I had time to answer.  In August, therefore, I’ll do another session with, but this time with the sole focus of Q&A.  Traders can ask me any question about any trading (or life) problem, and I’ll respond with ways I deal with those challenges as a psychologist and coach.  As the time gets closer, I’ll post instructions for registering for that session.

In this post, I’d like to elaborate on a point made in the recent webinar:

What traders typically identify as psychological problems in trading are usually the result of an underlying problem and not the problem itself.  Successfully dealing with the issue means identifying and addressing its cause.

This is a very important concept, and it’s what distinguishes would-be trading coaches from actual psychologists.  Very often the wannabe coach has a favorite tool or set of techniques for dealing with trader issues.  It’s one size fits all.  A psychologist recognizes that the problems people experience can have many causes and first tries to determine where the problem is coming from.  

Let’s take a typical example of a trader complaining of lapses in discipline.  The trader trades well for a while, then overtrades and loses more money than is prudent.  The trader asks the coach, “How can I solve this problem?”

It’s the wrong question.  The right question is, “Where is this problem coming from?”  It’s only after asking that question that we can figure out a possible solution.

Consider the following possible causes of lapses in trading discipline:

*  The trader is trying to focus on screens continually for an extended time and is becoming fatigued, with a resulting loss of willpower;

*  The trader is distracted by problems in his/her personal life, perhaps upset about arguments at home or financial issues;

*  The trader suffers from attention deficit disorder and resulting impulsivity;

*  The trader has become frustrated by recent trading losses, as these trigger past feelings of being a loser;

*  The trader has failed to adapt to a lower volume/lower volatility market and is now trading breakouts/momentum that fail to materialize.

You get the idea.  Loss of discipline is not the problem.  Loss of discipline is the result of a problem, and we have to diagnose that problem to figure out how to address it.  Filling out trading journals and checklists will not help the trader deal with personal issues at home or medical issues regarding ADD.  Working on mindfulness and awareness/control of emotions will not help a trader adapt to a changing market regime or address past psychological conflicts.  All of those techniques are useful in certain situations; none are universal solutions for our trading psychology.

The starting point for identifying causes of our trading psychology challenges is creating a catalogue of instances when those challenges are and aren’t occurring.  So, for example, we would note when we are having more trouble with discipline in trading and we would jot down what is occurring at those times:  what’s happening in markets, what’s going on in our minds, what’s happening in our personal lives, etc.  We would also write down occasions when we’re faring much better in our discipline and what is going on at those occasions.  As we catalogue instances, we begin to notice patterns and those provide excellent clues as to potential sources of our trading woes.

The most important distinction is between issues that occur solely within the trading context and issues that also occur outside of trading and/or that have occurred in our past.  If we’re lacking discipline in our personal lives (perhaps by not paying bills on time, by being easily distracted, by being emotionally upset), that is different from situations where discipline lapses are specific to the trading context.  Very often the connection is an emotional one:  the frustration that triggers the lapse of discipline is a frustration that is being felt in other parts of the trader’s life and/or that has been felt during the trader’s past.  

Very often, as you catalogue the waxing and waning of problem patterns, you’ll see that working with a dedicated trading coach is not the answer.  If the problem is a conflict from your past repeating itself in your trading, a competent counselor or therapist can help with this.  If the problem is an attention deficit that has been present since our youth, this can be addressed medically and perhaps via biofeedback training.  If the problem is adapting to changing market conditions, perhaps what is needed is some mentoring from an experienced trader.

We can coach ourselves for a better trading psychology by paying close attention to the triggers of our trading challenges.  Asking the right questions greatly increases the odds of finding solutions for our trading.

Further Reading:  

Brief Therapy for the Mentally Well

More Therapy for the Mentally Well

Four Triggers for Trading Psychology Problems

A Powerful Change Technique for Our Trading Psychology

The Daily Trading Coach:  101 Techniques for Changing Trading Psychology

Published at Sat, 25 Mar 2017 11:05:00 +0000

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Two Trends That Will Force The Fed To Start Buying Stocks

By Foundry from Pixabay

Two Trends That Will Force The Fed To Start Buying Stocks

By: John Rubino | Sat, Mar 25, 2017

While the Japanese and Swiss central banks have turned
themselves into hedge funds
by loading up on equities, the US Fed has
stuck to supporting the stock market indirectly, by buying bonds. It’s worked,
obviously, with all major US indexes at record highs. But it won’t work going
forward, thanks to two gathering trends.

First, the main way bond buying supports equities is by lowering interest
rates which, among other things, allows corporations to borrow cheaply and
use the proceeds to buy back their own stock. Companies avoid paying dividends
on the repurchased stock and the government gets capital gains tax revenue
from a bull market. From a short-sighted Keynesian perspective, it’s a win-win.

Alas, this New Age public/private partnership on running out of steam. Interest
rates have fallen about as far as they can fall and corporations have borrowed
about as much as they can borrow. So the buyback binge is topping:

Buybacks Sink For Second Straight Year

(Forbes) – According to S&P Dow Jones Indices, companies of the S&P
500 index in the fourth quarter pulled back on their share repurchases by
7.2% from the fourth quarter 2015, although they accelerated 20.6% sequentially.

Companies spent $135.3 billion buying back their shares during the fourth
quarter, compared to $112.2 billion from the third quarter and $145.9 billion
in the fourth quarter 2015. For the full year, they spent $536.4 billion
on buybacks, a decline from $546.4 billion in 2015 and $553.3 billion in
2014 – the first time the index saw two consecutive years of declines since
the financial crisis era or 2008 and 2009.

S&P500 Quarterlt Buybacks

A longer-term but potentially much bigger problem for equities can be found
in the structure of US retirement savings accounts. At age 70, holders of IRAs
are required to start cashing them out, and as the number of Boomer retirees
soars the size of these required sales will rise commensurately. Here’s a snippet
from a longer analysis by Economica’s Chirs Hamilton. The full article is here.

Minimum Distributions Spell Disaster (& Even Greater Intervention)
As Sellers To Overwhelm Buyers

Simply put, investing for the long term had it’s time but that time is drawing
to a close. The math is pretty easy…we’ll have too many sellers and too
few buyers. Why? At age 70.5 years old, retirees are mandated by force of
law to sell tax deferred assets accumulated over their lifetime and do so
in a 15 year period. Conversely, buyers, incented by tax deferral (but not
forced to buy by law), generally have a 35yr window of accumulation. Over
the past 65 years (on a population basis), there were three new buyers for
every new seller. Over the next 25 years (on a population basis), there will
be three new sellers for every new buyer.

2015-2040 Buyers versus Sellers

In the next downturn, corporations will stop buying — as they always do at
bottoms — and retirees will be forced by both necessity and law to liquidate
some of their nest eggs. Combined, these sales will put unacceptable downward
pressure on stock prices, leading to the kinds of instability that over-leveraged
systems can’t handle.

The Fed – and probably the ECB – will then join the BOJ and SNB in buying
equities. Like QE and the other recent monetary experiments, this might be
seen by mainstream economists as a good thing. But it’s not. For at least three
reasons why it’s not, see We’re
All Hedge Funds Now, Part 4: Central Banks Become World’s Biggest Stock Speculators
at least three reasons why it will make a bad situation infinitely worse.

John Rubino


John Rubino

John Rubino edits and has authored or co-authored five
books, including The Money Bubble: What To Do Before It Pops, Clean
Money: Picking Winners in the Green Tech Boom
, The Collapse of the Dollar
and How to Profit From It
, and How to Profit from the Coming Real Estate
. After earning a Finance MBA from New York University, he spent the
1980s on Wall Street, as a currency trader, equity analyst and junk bond analyst.
During the 1990s he was a featured columnist with and a frequent
contributor to Individual Investor, Online Investor, and Consumers Digest,
among many other publications. He now writes for CFA Magazine.

Copyright © 2006-2017 John Rubino

All Images, XHTML Renderings, and Source Code Copyright ©
Published at Sat, 25 Mar 2017 14:43:55 +0000

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Silver Miners’ Q4’16 Fundamentals


Silver Miners’ Q4’16 Fundamentals

By: Adam Hamilton | Fri, Mar 24, 2017

The silver miners’ stocks have had a roller-coaster ride of a year so far.
They surged, plunged, and then started surging again last week on a less-hawkish-than-expected
Fed. Such big volatility has spawned similar outsized swings in sentiment,
distorting investors’ perceptions of major silver miners. But their recently-reported
fourth-quarter operating and financial results reveal the true underlying fundamental

Four times a year publicly-traded companies release treasure troves of valuable
information in the form of quarterly reports. Required by securities regulators,
these quarterly results are exceedingly important for investors and speculators.
They offer a clear snapshot of what’s really going on fundamentally, in individual
silver miners and this small sector as a whole. There’s no silver-stock data
I look forward to more.

Normally quarterlies are due 45 calendar days after quarter-ends, in the form
of 10-Qs required by the SEC for American companies. But after the final quarter
of fiscal years, which are calendar years for most silver miners, that deadline
extends out up to 90 days depending on company size. The 10-K annual reports
required once a year are bigger, more complex, and require fully-audited
unlike 10-Qs.

So it takes companies more time to prepare full-year financials and then get
them audited by CPAs right in the heart of their busy season. As a silver-stock
trader this additional Q4 delay is irritating, since the data is getting stale
by Q1’s end. But as a CPA and former Big Six auditor of mining companies, I
have some understanding of just how much work goes into an SEC-mandated 10-K
annual report. It’s enormous!

This extended Q4-reporting window naturally delays the analysis of Q4 results.
While I can start digging into the first three quarters’ results 5 or 6 weeks
after those interim quarter-ends, I have to wait longer for the fiscal-year
quarter-ends. Thankfully the majority of silver miners have reported by 9 or
10 weeks, so we don’t quite have to wait until early Q2 to analyze Q4 results.
The silver miners’ Q4’16 proved fairly strong!

Silver mining is a tough business both geologically and economically. Primary
silver deposits, those with enough silver to generate over half their revenues when
mined, are quite rare. Most of the world’s silver ore formed alongside base
metals or gold, and their value usually well outweighs silver’s. Thus around
2/3rds of all the silver mined worldwide is actually a byproduct of base-metals
and gold mining.

As scarce as silver-heavy deposits supporting primary silver mines are, primary
silver miners are even rarer. Since silver is so much less valuable
than gold, most silver miners need multiple mines in order to generate sufficient
cash flows. These often include non-primary-silver ones, usually gold. More
and more traditional elite silver miners are aggressively bolstering their
gold production, often at silver’s expense.

So the universe of major silver miners is pretty small, and their purity
is shrinking. The definitive list of these companies to analyze comes from
the most-popular silver-stock investment vehicle, the SIL Global X Silver Miners
ETF. This week its net assets are running 5.4x greater than its next-largest
competitor’s, so SIL really dominates this space. With ETF investing now the
norm, SIL is a boon for its component miners.

While there aren’t many silver miners to pick from, major-ETF inclusion shows
silver stocks have been vetted by elite analysts. Due to fund flows into top
sector ETFs, being included in SIL is one of the important considerations for picking
great silver stocks
. When the vast pools of fund capital seek silver-stock
exposure, their SIL inflows force it to buy shares in its underlying companies
bidding their prices higher.

This week as the major silver miners finish reporting their Q4’16 results,
SIL includes 24 “silver miners”. This term is used rather loosely, as SIL includes
plenty of companies which simply can’t be described as primary silver miners.
Most generate well under half their revenues from silver, which greatly
limits their stock prices’ leverage to silver rallies. Nevertheless, SIL is
the leading silver-stock ETF and benchmark we have.

The higher the percentage of sales any miner derives from silver, naturally
the greater its exposure to silver-price moves. If a company only earns 20%,
30%, or even 40% of its revenues from silver, it’s not a primary silver miner
and its stock price won’t be very responsive to silver itself. But as silver
miners are increasingly actively diversifying into gold, there aren’t
enough big primary silver miners left to build an ETF alone.

Every quarter I dig into the latest results from the major silver miners of
SIL to get a better understanding of how they and this industry are faring
fundamentally. I feed a bunch of data into a spreadsheet, some of which made
it into the table below. It includes key data for the top 17 SIL component
companies, an arbitrary number that fits in this table. That is a commanding
sample at 95.6% of SIL’s total weighting.

While most of these top 17 SIL components have reported on Q4’16, not all
have. Some of these major silver miners trade in Mexico and the UK, and only
report half-year results. And plenty of companies lump their Q4 results into
full-year-2016 numbers. If not explicitly broken out, most of the fourth-quarter
results can’t simply be inferred.  So if a field is left blank in this table,
that data wasn’t available this week if ever.

The first couple columns show each SIL component’s symbol and weighting as
of Wednesday. A bare majority of these silver stocks trade in the US, with
the others in Mexico, the UK, and Canada. So if you can’t find a symbol here,
it’s a listing from a company’s primary foreign stock exchange. That’s followed
by each company’s Q4’16 silver production in ounces, along with its absolute
percentage change from Q3’16.

Quarter-on-quarter changes offer a more-granular read on companies’ ongoing
operating and financial performance trends than year-over-year comparisons.
QoQ changes are also included for the key data in this table’s right half of
cash costs per ounce of silver mined, all-in sustaining costs per ounce, and
operating cash flows generated. Together costs and cash flows reveal the financial
health of silver miners.

The Q4’16 silver production is followed by that same quarter’s gold production.
Almost every major silver miner in SIL also produces significant-if-not-large
amounts of gold! While gold stabilizes and augments the silver miners’ cash
flows, it also retards their stocks’ sensitivity to silver itself. Naturally
investors and speculators buy silver stocks and their ETFs because they want leveraged
exposure to silver’s price
, not gold’s.

So a final column reveals how pure the elite SIL silver miners are.
This is mostly calculated by taking a company’s Q4 silver production, multiplying
it by the average silver price in Q4, and dividing that by the company’s total
quarterly sales. If miners didn’t report Q4 revenues, I approximated them by
adding the silver sales to gold sales based on their quarterly production and
the metals’ average fourth-quarter prices.

This exercise of examining the quarterly results of the elite silver miners
as represented by SIL’s top 17 holdings is always illuminating. It offers many
important fundamental insights into the individual stocks and this sector as
a whole. These Q4’16 results collectively prove the major silver miners were
in no fundamental peril last quarter, despite silver and SIL plunging 16.9%
and 27.8% in that post-election Trumphoria.

SIL Component Companies' Fundamentals Q4'16

While unfortunately the silver miners as a whole are kind of lazy in breaking
out their Q4 results from full-year or half-year ones, they do report quarterly
production. Together these elite miners produced 76.3m ounces of silver last
quarter, almost dead flat from Q3’16’s 76.2m. But on average most of these
top SIL components saw shrinking silver production, which was collectively
offset by big growth in a handful.

The reasons for lower silver production vary by company of course, ranging
all the way from temporary lower ore grades to depleting mines. But this wasn’t
a symptom of a slower mining tempo in general, as these same top silver miners’
Q4 gold production rocketed 11.4% higher absolutely from Q3’s levels!
That bests the 10.9% QoQ production gains in GDXJ’s
elite junior gold miners
, which are in the gold business.

The silver miners are collectively deciding to diversify into gold due to
its superior economics compared to silver. No silver-stock investor likes to
hear this, but it’s the hard reality today. Consider hypothetical mid-sized
silver and gold miners, which might produce 10m ounces and 300k ounces annually.
What would those cash flows actually look like at last quarter’s average silver
and gold prices of $17.12 and $1218?

This silver miner would generate $171m in yearly sales, but the gold miner’s
$365m more than doubles that. Silver mining is often as capital-intensive
as gold mining, requiring similar expenses for planning, permitting, and building
mines and mills to process the ore. Similar heavy machinery is necessary to
dig and haul the ore, along with similar staffing levels. So silver’s lower
cash flows make silver mining harder.

Silver-mining profits do skyrocket when silver soars occasionally in one of
its massive bull markets. But during silver’s long intervening drifts at relatively-low
price levels, the silver miners often can’t generate sufficient cash flows
to finance expansions. So the top silver miners are increasingly looking to
gold, a trend that isn’t likely to reverse given the relative economics of
silver and gold. Primary silver miners are getting rarer.

The silver-streaming giant Silver Wheaton, SIL’s third-largest component this
week, has long been the pure-silver powerhouse of this sector. A year ago in
, it derived 75.9% of its revenues from silver which was the best
by far in SIL. By Q4’16, this had dropped to a mere 50.4%. Mighty SLW is actually
on the verge of becoming a primary-gold play! This is intentional as
SLW itself declared in its Q4 results this week…

“Since 2013, our company has seen a marked increase in gold production, and
in the second half of 2016, revenue was evenly split between silver and gold.
In order to better align our corporate identity with underlying operations
while maintaining a link to our past and the innovation that the ‘Wheaton’
name has become synonymous with, we have recommended changing our name to Wheaton
Precious Metals.”

Technically a company isn’t a primary silver miner unless it derives over
half its revenues from silver. In Q4’16, the average sales percentage from
silver of these top SIL components was just 40.6%. That is right on trend over
the past year, with Q4’15, Q1’16, Q2’16,
and Q3’16 weighing
in at 47.5%, 44.9%, 45.3%, and 42.8%. At this pace and 40.6% today, the top
silver miners are soon heading well under 40%!

While I understand this, as a long-time silver-stock investor it saddens me
primary silver miners have apparently become a dying breed. When silver
starts powering higher in one of its massive uplegs and well outperforms gold
again, this industry’s silver percentage will rise. But unless silver not only
shoots way ahead but stays there while gold lags, it’s hard to see major-silver-mining
purity significantly reverse.

In Q4’16, only 5 of the top 17 SIL components qualified as the primary silver
miners that SIL investors are undoubtedly looking to own when buying this “Silver
Miners ETF”. In today’s current Q1’17 it will likely slip to 4 as the soon-to-be-renamed
SLW slides below 50% of its sales derived from silver. I’ve been critical of
SIL’s managers in the past on silver-mining purity, but they can’t fight the
rising-gold trend.

Moving on, once again SIL plunged a brutal 27.8% last quarter on silver’s
own sharp 16.9% plunge. This serious silver weakness was driven by the post-election
Trumphoria stock-market rally slaughtering any interest in prudent portfolio
diversification with gold. That led to a sharp
mass exodus
from gold, and silver mirrored
and amplified gold’s moves
as always. Silver’s average price fell 12.4%
QoQ in Q4.

That scared silver-stock investors, leading to sustained selling fueling extremely-bearish
sentiment by late December. As always during a major selloff they assumed the
silver miners’ plunge was righteous and fundamentally-justified, instead of
purely sentimental and thus irrational. But it really was the latter as the
top 17 SIL silver miners’ recently-reported Q4 results proved.  They were never
in fundamental danger.

There are two major ways to measure silver-mining costs, classic cash costs
per ounce and the superior all-in sustaining costs per ounce. Both are useful.
Cash costs are the acid test of silver-miner survivability in lower-price environments,
showing the worst-case silver levels necessary to keep the mines running.
All-in sustaining costs reveal where silver needs to trade to maintain current
operations indefinitely.

Cash costs naturally encompass all cash expenses necessary to produce
each silver ounce, including all direct production costs, mine-level administration,
smelting, refining, transport, regulatory, royalty, and tax expenses. In Q4’16,
these top SIL-component silver miners that reported cash costs averaged just
$5.28 per ounce. That’s a major 6.2% sequential improvement from Q3, and less
than a third of current silver levels!

But cash costs are understated due to an outlying anomaly. This week Silvercorp
Metals is the 17th-largest SIL component, making it into this table. A quarter
ago it was 18th, and thus not included. SVM mines base-metals-heavy silver
deposits with huge lead and zinc byproducts. These are sold and credited to
silver-mining costs, lowering the cash costs to negative $5.48 per ounce!
That really distorts the overall picture.

Ex-SVM, these silver miners’ cash costs soared 21.1% QoQ from $5.63 in Q3
to $6.82 in Q4. While that remains far below prevailing silver prices proving
these elite silver miners were in no fundamental peril, it illustrates the
economic challenges of silver mining. With most of the major silver miners
producing less silver in Q4, their high fixed costs of mining were spread across
fewer ounces driving up per-ounce costs.

Way more important than cash costs are the far-superior all-in sustaining
costs. They were introduced by the World Gold Council in June 2013 to give
investors a much-better understanding of what it really costs to maintain a
silver mine as an ongoing concern. AISC include all direct cash costs, but
then add on everything else that is necessary to maintain and replenish operations
at current silver-production levels.

These additional expenses include exploration for new silver to mine to replace
depleting deposits, mine-development and construction expenses, remediation,
and mine reclamation. They also include the corporate-level administration
expenses necessary to oversee silver mines. All-in sustaining costs are the
most-important silver-mining cost metric by far for investors, revealing miners’ true
operating profitability

In Q4’16 the top SIL components reported average AISC of $10.56 per ounce,
up 4.3% QoQ from
Q3’s levels
.  But again this is heavily skewed by SVM edging into SIL’s
top 17 components.  Its anomalous $1.87-per-ounce AISC from its freak silver
deposits really dragged down the average. Ex-SVM again, these silver miners’
average AISC surged 18.6% QoQ to $12.01. Lower quarterly production was the
key cause.

SIL’s top two components are giant Mexican mining conglomerates that produce
vast amounts of silver but don’t report all-in sustaining costs quarterly.
Together the quarterly silver production of Industrias Penoles and Fresnillo
soared 11.5% or 3.0m ounces QoQ. Meanwhile the next 15 biggest SIL stocks saw
silver production plunge 5.7% or 2.9m ounces QoQ! That really forced their
per-ounce costs higher.

Nevertheless, silver mining is still quite profitable even at Q4’s lackluster
silver prices averaging $17.12. At that $10.56 average AISC, that implies hefty
profit margins of $6.56 per ounce or 38%! CEOs in most industries would sell
their souls for margins like that. Even at those adjusted $12.01 AISC, silver-mining
profit margins of $5.11 are still excellent. The sharp silver-stock selloff
in Q4 wasn’t fundamentally justified.

These AISC levels suggest the top silver miners’ profits will remain rock-solid
in the current almost-over Q1’17. Silver has averaged $17.37 so far this quarter,
1.5% better than Q4. So if AISC remain stable, Q1’s silver-mining profit margins
are likely to be a little better than Q4’s. The silver miners have forecast
stable AISC for full-year 2017, with 8 of SIL’s top 17 averaging $11.07.
Ex-SVM, that rises to an adjusted $11.87.

The top silver miners’ operating cash flows fared reasonably well in Q4 considering
silver’s sharp drop. They were boosted by gold performing better relatively.
Its average price only fell 8.8% QoQ compared to silver’s 12.4% drop. This
combined with higher gold and lower silver production led to $537m in OCF generation
by the top SIL miners reporting them for Q4. Compared to Q3’s $1577m, that
seems miserable.

But it’s misleading due to Q4-reporting limitations. Our sample size in Q4’16
was 9 of SIL’s top 17 stocks compared to 14 of 17 in Q3. And SIL’s top component
Industrias Penoles reported $899m of operating cash flows in Q3 but didn’t
break out Q4 from full-year results. If the same other 8 silver miners reporting
in Q4 are compared with their own Q3 operating cash flows, Q4’s $509m was only
down 14.3%
from Q3’s $594m!

So all things considered, the silver miners fared really well operationally
considering silver’s big plunge last quarter. Though their mining costs jumped
due to lower silver production, they remained relatively low even compared
to low prevailing silver prices. And higher gold production fed stronger operating
cash flows than the sharply-lower silver prices alone implied were coming.
The elite silver miners are doing fine!

But they remain really undervalued after their extreme Q4 selloff.
Silver’s mean reversion higher out of that crazy post-election Trumphoria anomaly
is already well underway. Back in Q3’16 before that, silver averaged $19.55
which was 14% higher than Q4’s levels. If silver merely returns to there, silver-mining
profits will surge 37% higher. The battered silver stocks are very attractive
with their big upside leverage to silver.

Once undervalued
starts seriously powering higher with gold again, capital will
flood back into the silver stocks catapulting their prices far higher. The
silver miners’ operating profitability greatly improves during silver bulls,
so their huge silver-stock upside is totally justified fundamentally.
The anomalous post-election silver-stock plunge and its aftermath is a fantastic
buy-low opportunity on irrational bearish psychology.

While investors and speculators alike can certainly play the silver miners’
ongoing mean-reversion bull with this leading SIL ETF, individual silver stocks
with superior fundamentals will enjoy the best gains by far. Their upside will
trounce the ETFs’, which are burdened by companies that don’t generate much
of their sales from silver. A handpicked portfolio of purer elite silver miners
will generate far-greater wealth creation.

At Zeal we’ve literally spent tens of thousands of hours researching
individual silver stocks and markets, so we can better decide what to trade
and when. As of the end of Q4, this has resulted in 906 stock trades recommended
in real-time to our newsletter subscribers since 2001. Fighting the crowd to
buy low and sell high is very profitable, as all these trades averaged stellar
annualized realized gains of +22.0%!

The key to this success is staying informed and being contrarian, meaning
buying low when others are scared. So we aggressively added new trades in early
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The bottom line is the major silver miners fared just fine operationally in
Q4’16. Despite all the emotional silver-stock dumping on sharply-lower silver
prices, this industry’s underlying fundamentals stayed quite strong. Costs
remained way under prevailing silver prices even at lows, feeding big profit
margins. And the silver miners growing their gold production mitigated the
hit to operating cash flows from falling silver.

With silver-stock sentiment remaining so excessively bearish, this sector
is primed to soar as silver itself continues mean reverting higher out of its
post-election anomaly. The silver miners’ profits leverage to rising silver
prices remains excellent. And after fleeing silver stocks last quarter, investors
and speculators will have to do big buying to reestablish silver-mining positions.
These capital inflows will fuel big gains.

Adam Hamilton

Adam Hamilton, CPA

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Mr. Hamilton, a private investor and contrarian analyst,
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