Showing posts with label XLU. Show all posts
Showing posts with label XLU. Show all posts

Sunday, May 2, 2021

Utilities Continues To Rally – Is It Sending A Warning Signal Yet?

We have experienced an incredible rally in many sectors over the past 5+ months. My research team has been pouring over the charts trying to identify how the next few weeks and months may play out in terms of continued trending or risks of some price volatility setting up. We believe the Utilities Sector may hold the key to understanding how and when the US markets will reach some level of stronger resistance as many sector ETFs are trading in new all time high price ranges.

Utilities Sector Resistance at $71.10 Should Not Be Ignored

The Utilities Sector has continued to rally since setting up a unique bottom in late February 2021. A recent double top setup, near $68, suggests resistance exists just above current trading levels. Any continuation of this uptrend over the next few weeks, targeting the $70 Fibonacci 100% Measured Move, would place the XLU price just below the previous pre COVID19 highs near $71.10 (the MAGENTA Line).

My research suggests the momentum up this recent uptrend may continue to push prices higher into early May, quite possibly setting up the Utilities ETF for a rally above $70. Yet, we believe the resistance near $71.10 will likely act as a strong barrier for price and may prompt a downward price correction after the completion of the Fibonacci 100% Measured Price Move. In other words, the recent rally across many sectors will likely continue for a bit longer before key resistance levels begin to push many sectors into some sideways trading ranges....Continue Reading Here.

Tuesday, November 7, 2017

The Iron Rule of the Financial Markets

This math formula that can literally predict the market:    dxt=θ(μ−xt)dt+σdWt

John Bogle the founder of The Vanguard Group, calls it the iron rule of the financial markets. Jason Zweig from the Wall Street Journal says it’s the most powerful law in finance.

Legendary trader James O'Shaughnessy says that historically, we have always seen it driving stocks. And over the last 8 years it could have paid you well in consistent reliable profits.

Now I’m Going To Show You How It Works ← Click Here

If you trade it with options it could produce rapid two week individual trade profits like....

  *  204% on XLU Put Options

  *  124% on XLE Call Options

  *  And even as much as 998% on XLE Put Options

  *  All in precisely two weeks - no more, no less.

Get The Facts ← Click Here

My trading partner Todd Mitchell has recorded a three video series explaining how it works. He’s making it available to you now - 100% for FREE.

This series will only be available for a very limited time. If you want to watch…

Visit Here to Check it Out Right Now

See you in the Markets!
Ray C. Parrish
aka the Crude Oil Trader




Friday, May 12, 2017

The Bond King Says "Short U.S. Stock"

Image result for jeffrey gundlachShort the SP500.....That’s not something most investors would consider right now. After all, US stocks have been rallying for eight straight years. At this point, it’s hard to even remember what a down market feels like.

But that’s exactly what Jeff Gundlach thinks you should do. Gundlach, as you may know, is one of the world’s brightest investors. He manages more than $100 billion at his firm DoubleLine Capital.

On Monday, he told a room full of investors at the Sohn Investment Conference in New York to short (bet against) the SPDR S&P 500 ETF (SPY). This fund tracks the S&P 500. It’s the most heavily traded ETF on the planet.

It’s a bold call, to say the least.…
But Gundlach has a history of nailing calls like this. At last year’s Sohn Conference, he told investors to short the Utilities Select Sector SPDR Fund (XLU) and buy the iShares Mortgage Real Estate Capped ETF (REM). If you had taken Gundlach’s advice, you’d be up 40% on this trade today. Gundlach was also one of the few people to predict that Donald Trump would become president of the United States. In June, he told CNBC:
People aren't getting along, they're not happy because of technology taking jobs, and sort of this long, slow grind of a new economy. And so they're looking for change, and I think Trump is going to win on the basis of that.
In other words, it pays to listen to Gundlach.…
But here’s the thing. Gundlach doesn’t think you should get out of stocks completely. Instead, he thinks you should “go long” emerging markets. These are countries that are on their way to becoming “developed” countries like the United States. Brazil, Russia, India, and China (also known as the “BRICs”) are the largest emerging markets.

On Monday, Gundlach told investors at the Sohn Conference to buy the iShares MSCI Emerging Markets ETF (EEM), which tracks over 800 emerging market stocks. It’s one of the safest and most diversified ways to play emerging markets. Of course, you would have already known that if you’ve been reading the Dispatch.

After all, I’ve been pounding the table on emerging market stocks for months.…
In February, I outlined the bullish case for emerging markets. A month later, I told investors to “forget about US stocks” and consider emerging market stocks. I even recommended checking out EEM, just like Gundlach. Not only that, Gundlach likes emerging markets for the same reasons we do. I’ll share those with you in a moment. But let’s first look at why the “Bond King” thinks you should short the S&P 500.

U.S. stocks are incredibly expensive.…
Just look at this chart. It compares the total market value of the S&P 500 with the annual economic output of the United States, as measured by gross domestic product (GDP). This key ratio is now at the highest level since the dot com bubble.




US stocks aren’t just expensive from a historical perspective, either.…
They’re also much more expensive than emerging market stocks. Gundlach explained to CNBC on Monday:
The valuation of emerging markets is half the valuation of the S&P 500 when you look at things like price to sales, price to book, [and] Dr. Shiller’s CAPE ratio.
Dispatch readers know CAPE stands for cyclically adjusted price to earnings. It’s the cousin of the popular price to earnings (P/E) ratio. The only difference is that it uses 10 years’ worth of earnings instead of one. But just like the P/E ratio, a high CAPE ratio means stocks are expensive. You can see below that the CAPE ratio has surged to 29.5. That’s 76% higher than the S&P 500’s historical average. US stocks have only been this expensive two times in history: just before the Great Depression and during the dot com bubble. Meanwhile, the CAPE ratio for EEM is floating around 14, meaning it’s 52% cheaper than SPY.

To be fair, emerging market stocks have been cheaper than US stocks for years.…
And they’ve still underperformed them. But that’s starting to change. Just look at the chart below. It compares the performance of the S&P 500 with EEM. When this line is rising, it means US stocks are doing better than emerging market stocks.


You can see that’s been the case for years. But this key ratio just broke a long term upward trend line.
This tells us that emerging market stocks should outperform US stocks for years to come.

If you haven’t already, I recommend you pick up some emerging market stocks today.…
The easiest way to do this is with EEM or another major emerging market fund. These funds will give you broad exposure to emerging markets. Once you build a core position in emerging markets, you could consider investing in individual emerging markets. Right now, three of our favorite emerging markets are Poland, Colombia, and India.

As for U.S. stocks, I wouldn’t encourage everyday investors to short the S&P 500 like Gundlach recommends. Instead, I suggest you be very selective about what U.S. stocks you own. Avoid stocks trading at nosebleed valuations. Own companies with resilient business models and little debt.

The article “The Bond King” Says Short US Stocks was originally published at caseyresearch.com.




Stock & ETF Trading Signals

Tuesday, September 17, 2013

Getting Shocked by Utility Stocks

By Dennis Miller

Retirees' portfolios need to be defensive, meaning they minimize risk but still have the potential for growth and income. Historically, this meant including a few widow-and-orphan stocks in your retirement portfolio....public utilities with nice dividends.


Utilities experience little volatility, their dividends are solid, and the demand for their product is constant, regardless of how well the economy is doing. Government regulation also gives them a leg up, since utilities face little competition. They set their rates, consumers pay up with little fuss because they have few alternatives, and the utilities turn a profit.

So, we at Miller's Money Forever wondered, is it time to add one or two utilities to our own portfolio? As I talked through the idea with our chief analyst, I could hear him clicking away on his keyboard in the background. A little research on a couple of utilities quickly put things in perspective. Had we bought in to Exelon (EXC) in early May at the wrong time, we almost would have been stopped out by a 20% trailing stop, since the stock fell as far as 19%. We were both shocked.

But that's only one utility. What about the sector as a whole? With a few more clicks, we learned that the Utilities Select Sector SPDR (XLU), a $5.4-billion exchange-traded fund of utilities, had fallen as far as 11% since the beginning of May. That's an enormous move in such a short period of time for what many consider a staple sector for retirement portfolios.

Wait a minute here! Utility stocks are supposed be the ultimate safe investment. They didn't earn the nickname "widow and orphan stocks" for being volatile, so what the heck happened?

History Does Not Guarantee Future Performance

 

We ran an in-depth analysis and came up with a bit of a history lesson for me to pass along. Let's start with where defensive stocks stood prior to the rapid rate increase in Treasuries. With yields near record lows, investors piled in to dividend stocks in search of income. But they didn't pick just any type of stock—they specifically chose defensive stocks with a beta of less than one. For a quick review, a beta of one means a 10% move in the stock market should theoretically move the stock 10%. A beta of 0.5 means a 10% move in the market should move the stock only 5%.

In addition to retail investors, more sophisticated analysts suggested moving in to these stocks as well. One of the most common Wall Street valuation models examines three primary factors: dividends, beta, and the US Treasury rate. When the beta and Treasury rates are low and the dividend is high, a stock is shown to be more valuable. Based on this model, a stock's value is more dependent on Treasury rates and the dividend than what often drives value: cash flows and growth.

In a nutshell, because there are no safe, decent interest-bearing investments available, many billions of dollars went into utility stocks. In some sense, utilities began to act like bonds. And when interest rates rise, bond prices fall. As a result, what was once considered the definitive stable investment is now interest-rate sensitive, just like long term bonds.

In order to get a better visual of what's been happening, we tracked XLU's performance since May 1—a period of rapidly rising rates—and compared it to a theoretical beta-based utility performance as well as the S&P 500. With a beta of 0.63, XLU should move 6.3% whenever the market moves 10%. In many situations beta works well, but unfortunately, it doesn't capture every risk, including interest-rate risk.


The blue line traces the return on the S&P 500. The green line depicts how XLU theoretically should have moved based on its beta. The red line shows how it actually performed. Note the enormous difference, bottoming out as far as 11.2% down.

Although beta is typically used as a back-of-the-envelope measure of risk, it's not doing a particularly good job for utilities in a rising-rate environment. And while the S&P 500 has recovered from June's turbulence, utilities are still down for this period.

After I saw the data, I asked what we should expect in the future. While I suppose it makes little difference if a retiree is holding utility stocks for the dividends, utilities will likely lose value as interest rates rise. That could be a bit unnerving.

This could be a real problem for retirees, as it's common practice for investment advisors at major brokerage firms to put their more conservative investors in utilities. A seasoned veteran once told me that no broker ever got sued for putting clients' money into utilities. I wonder how many brokers and investment advisors have noticed the shift happening in utilities with higher rates.

In light of rising interest rates, we have refined our criteria for selecting solid and safe investments for the Money Forever portfolio. Unfortunately, not everyone was has caught on. Take a look at your portfolio to see whether you need to trim down your utilities exposure. Should the market crash, I'd rather be holding a utility than General Motors, but at the same time, if interest rates keep going up utilities will feel the pain.
I discussed this issue—as well as others facing retirees—in a very recent and timely online event called America's Broken Promise: Strategies for a Retirement Worth Living. This free event’s all-star cast explains the unique challenges retirees face today—challenges far different from what we were raised to expect.

The presentation is hosted by my colleague, David Galland of Casey Research, and features John Stossel, formerly on ABC's 20/20 and now with Fox Business Network, David Walker, former Comptroller General of the United States, Jeff White, President of American Financial Group, and me of course.

This is the one event you must see to ensure you retire on your own terms. Use this link to find out more and to sign-up.





Monday, May 13, 2013

How to Spot & Time Stock Market Tops

Since the middle of April everyone and including their grandmother seems to have been building a short position in the equities market and we know picking tops or bottoms fighting the major underlying trend is risky business but most individuals cannot resist.

The rush one gets trying to pick a major top or bottom is flat out exciting and that is what makes it so darn addicting and irresistible. If you have ever nailed a market top or bottom then you know just how much money can be made. That one big win naturally draws you back to keep doing it much like how a casino works. The chemicals released in the brain during these extremely exciting times are strong enough that even the most focused traders fall victim to breaking rules and trying these type of bets/trades.

So if are going to try to pick a top you better be sure the charts and odds are leaning in your favor as much as possible before starting to build a position.

Below are a few charts with my analysis and thoughts overlaid showing you some of the things I look at when thinking about a counter trend trade like picking a top within a bull market.

Utility Stocks vs SP500 Index Daily Performance Chart:

The SPY and XLU performance chart below clearly shows how the majority of traders move out of the slow moving defensive stocks (utilities – XLU) and starts to put their money into more risky stocks. This helps boost the broad market. I see the same thing in bonds and gold this month which is a sign that a market top is nearing.

That being said when a market tops it is generally a process which takes time. Most traders think tops area one day event but most of the times it takes weeks to unfold as the upward momentum slows and the big smart money players slowly hand off their long positions to the greedy emotion drove traders.

Look at the chart below and notice the first red box during September and October. As you can see it took nearly 6 weeks for that top to form before actually falling off. That same thing could easily happen again this time, though I do feel it will be more violent this time around.

SPYXLU

SPY ETF Trading Chart Shows Instability and Resistance:

Using simple trend line analysis we see the equities market is trading at resistance and sideways or lower prices are more likely in the next week or two.

SPYResistance

Stocks Trading Above 150 Day Moving Average Chart:

This chart because it’s based on a very long term moving average (150sma) is a slow mover and does not work well for timing traded. But with that said it does clearly warn you when stocks are getting a little overpriced and sellers could start at any time.

General rule is not to invest money on the long side when this chart is above the 75% level. Rather wait for a pullback below it.

BarC150

Stocks Trading Above 20 Day Moving Average Chart:

This chart is based on the 20 day moving average which moves quickly. Because it reacts quicker to recent price action it can be a great help in timing an entry point for a market top or bottom. It does not pin point the day/top it does give you a one or two week window of when price should start to correct.

BarC20

How to Spot and Time Stock Market Tops Conclusion:

As we all know or will soon find out, trading is one of the toughest businesses or and one of the most expensive hobbies that one will try to master. Hence the 95-99% failure rate of individuals who try to understand how the market functions, position management, how to control their own emotions and to create/follow a winning strategy.

With over 8000 public traded stocks, exchange traded funds, options, bonds, commodities, futures, forex, currencies etc… to pick from its easy to get overwhelmed and just start doing more or less random trades without a proven, documented rule based strategy. This type of trading results in frustration, loss of money and the eventual closure of a trading account. During this process most individuals will also lose friends, family and in many cased self-confidence.

So the next time you think about betting against the trend to pick a top or a bottom you better make darn sure you have waited well beyond the first day you feel like the market is topping out. Stocks trading over the 150 and 20 day moving averages should be in the upper reversal zones and money should be flowing out of bonds and other safe haven/defensive stocks to fuel the last rally/surge higher in the broad market.

Also I would like to note that I do follow the index futures and volume very closely on both the intraday and daily charts. This is where the big money does a lot of trading. Knowing when futures contracts are being sold or bought with heavy volume is very important data in helping time tops and bottoms more accurately. And the more experience you have in trading also plays a large part in your success in trading tops and bottoms.

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