Where possible I try to avoid bull and bear market labels (admittedly they are easy words to use) but we had a good example this morning of why the terms mean very little.
There was chatter on CNBC about the Transports having topped out at 5000, going down to 4000 which is a 20% decline, a bear market but now it has gained almost half of that back.
The peak was in May and then it got close again in July. Clearly the ride down from July 5 to about August 10 was brutal but even if there is a text book definition somewhere that actually says 20% equals a bear market I don't think a bad month is something to be feared. Bad months happen all the time.
The sector is at a point now where we can see all sorts of things converging on the chart so the next few days could be interesting.
The decline from earlier in the summer makes some sense in the context of transports being so vital to an expanding economy. If there is a slowdown or recession in the cards transports would be especially hit (this is not a bold call, just a normal reaction to a recession).
8 comments:
Roger, what do you think of Everbank's commodity CD offering?
They offer 100% participation on the upside with no risk to principal for a 3 year hold.
Thanks
Phil, CLU, ChFC
Average Calculation For The MarketSafe Resource CD.
Term: 3 years
Participation Rate: 100%
MS Minimum Return: 0%
The Dow Jones - AIG Commodity Index is comprised of futures contracts for 19 physical commodities traded on the United States futures exchanges and the London Metals exchanges. The Index, first published in 1998, was created by American International Group, Inc. (AIGI) and is calculated by Dow Jones & Company, Inc.
The following table illustrates the historical performance of the Dow Jones - AIG Commodity Index while providing an example of your return, if you had held a MarketSafe CD during the periods indicated.
Series Date DJAIG Initial Value DJAIG Final Value DJAIG % Change Average of 6 DJAIG Pricing Date Values CD Hyptthetical % Return CD Hypothetical Payment at Maturity (per $10,000) Theoretical APY Earned
1991 - 1994 $100.00 $85.86 -14.14% $90.09 0.00% $10,000.00 0.00%
1992 - 1995 $89.193 $94.395 5.83% $91.44 2.51% $10,251.44 0.83%
1993 - 1996 $88.508 $105.041 18.68% $94.28 6.52% $10,652.05 2.13%
1994 - 1997 $85.864 $122.509 42.68% $104.55 21.77% $12,176.64 6.78%
1995 - 1998 $94.395 $111.073 17.67% $111.26 17.86% $11,786.13 5.63%
1996 - 1999 $105.041 $77.967 -25.77% $106.92 1.79% $10,178.53 0.59%
1997 - 2000 $122.509 $91.495 -25.32% $96.20 0.00% $10,000.00 0.00%
1998 - 2001 $111.073 $111.506 0.39% $93.49 0.00% $10,000.00 0.00%
1999 - 2002 $77.967 $89.884 15.28% $96.42 23.66% $12,366.47 7.34%
2000 - 2003 $91.495 $113.105 23.62% $102.99 12.56% $11,256.41 4.02%
2001 - 2004 $111.506 $140.078 25.62% $110.16 0.00% $10,000.00 0.00%
2002 - 2005 $89.884 $142.393 58.42% $126.16 40.36% $14,036.41 11.97%
2003 - 2006 $113.105 $171.829 51.92% $145.73 28.84% $12,884.37 8.81%
Roger, If I was building an account that was tax disadvantaged, I would follow closely your commentary. And, consider letting you manage it. But, I and probably others have large amounts in tax deferred accounts. The range of etfs are wonderful for us who are willing to actively manage. I do not claim to be making a killing, but certainly beating the averages and protecting capital.(knock on wood) The exception will be a few points under when it's a blowout; i'll take that. Along with reading your blog, a first stop every morning, are there other blogs that you think deem consideratin for folks who share my inclination to actively manage..ie. use short and intermediate trade signals? Have we been unfairly written off as using a strategy that academics contend as flawed?
Thoughts on options expiration today?
Reason I ask is that it seems "interesting" that the tide has turned so dramatically over the past few months - laggards that I can't buy into have rallied strongly while leaders have brutally trailed.
Take a look at the homebuilders. I think it's tough to justify that the fundamentals for the sector have improved 10% over the past week. I'll buy into the idea that sentiment has shifted somewhat, but a 10% move into an options expiration seems "interesting" to say the least.
My thoughts on transports mirror this. My gut tells me to rely more on action at the beginning of next week than what has happened in the recent past.
CD's?
This is my own irrational bias. I am not a fan of locking up money especially in something that can fluctuate a lot (return of principal notwithstanding).
In the past I have had emails from readers feeling trapped in these CD's. That's just me.
As for expiration; oil just went positive which i find odd. For now the SPX stopped one point below the May high (as I saw it anyway). If it cant get above 1325 on a closing basis and keep it for a day (maybe longer?) I think we get all sorts of negative commentary about lower high. We'll see.
As far as how expiration plays in, a common trade is that whatever happens expiration week unwinds the following week. That seems to be less relaible now than in the past. I wonder if it could be possible that the options market is now less important of a predictor because there are so many more particpants?
Really though, gaming expiration is not my thing anymore, I used to be mediocre at it but now I am not as good as that:-)
My thoughts are that the options market is systematically biased downward due to a plethora of "covered call" strategies being used to generate income today. I think extraordinary low implied vols support this idea.
This makes going long options a "subsidized trade" for those wishing to do so. Of course the best opportunities would reside in periods when there's limited statistics being released and in the more down and out sectors. Homebuilders, Transports, perhaps some tech make sense.
Interesting to see that after a quick 10% run over the past week, homebuilder volumes are way up today and the move reversed course mid-day.
Either way, it will be interesting to see how next week plays out.
With the apparant decline in oil prices, atleast for a while, it would appear that transports could do well over the short term. Any comments? Also I was curious why the airlines do not have a large representation in the transport ETFs? Thanks
Since Canada's and Austrialia's markets are thought to be proxys for commidities, do you think the resent commodity pull back will have a major impact on their currencys and markets in general? Thanks
Since Canada's and Austrialia's markets are thought to be proxys for commidities, do you think the resent commodity pull back will have a major impact on their currencys and markets in general? Thanks
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