Wall Street Sector Selector

Stock Market Shrugs Off Sequestration Cuts For Now

2013-03-03T21:24:00Z

U.S. stock market indexes rise on Friday as sequestration cuts go into force.

With the sequestration deadline come and gone, U.S. markets and major indexes advanced on Friday, shrugging off any worries about the mandatory reduction in government spending, at least for now.

The Dow Jones Industrial Average (NYSEARCA:DIA) gained 0.25% on Friday, while the S&P 500 (NYSEARCA:SPY) advanced 0.23%.

The Nasdaq 100 (NYSEARCA:QQQ) climbed 0.33% and the Russell 2000 (NYSEARCA:IWM) jumped 0.4% as investors ended a volatile week with a good day.

Major U.S. indexes also finished the week with modest gains as they try to reclaim all time highs last seen in October, 2007.

On My ETF Radar

chart courtesy of StockCharts.com

A quick glance at the chart of the S&P 500 (NYSEARCA:SPY) demonstrates the continued sideways action of this major U.S. index as investors try to determine if sequestration cuts will be a bad thing or not.

Resistance and support levels are clearly defined and this channel has now been underway for a full month. Sooner or later the S&P 500 (NYSEARCA:SPY) will break one way or another, perhaps in response to the sequestration cuts or perhaps to some other catalyst not yet on the horizon.

Sequestration Cuts Are Here And They’re Real

On Friday, President Obama ordered the mandatory spending cuts of $85 billion which he described as a “slow grind on the economy.”

The order came after a Friday White House meeting between the President and Congressional leaders ended with no agreement for preventing the automatic cuts from taking place. The issues remain the same as the President pushes for a mix of spending cuts and tax increases while the Republican controlled House of Representatives says that tax increases won’t be a part of this package.

The amount of the cuts will be $85 billion for 2013 and $1.2 Trillion over the next ten years. Defense will take approximately a 13% hit this year while 9% will come from social and non defense programs. The cuts will echo far and wide across the Federal and state level and how long this might go on or how deep the pain might be remain unknowns.

ETF News You Can Really Use

Federal Reserve Chairman Ben Bernanke spent two days testifying before Congress and his words seemed to have a calming effect on global stock markets as he defended his quantitative easing policies and gave no indication that they would be changing or ending anytime soon.

The economic news for the week was largely positive with initial jobless claims falling more than expected and ISM and Chicago PMI reports beating expectations. Durable good orders rose and January new home sales jumped to 437,000 from the previous month’s 378,000.

Case/Shiller reported that home prices continued to climb with a 6.8% rise in December over the previous year as the housing market continues to show strength which was confirmed by pending home sales rising 4.5% in January, up from -1.9% in December.

Consumer confidence continued to climb in spite of a sharp decline in in personal income with a fall of 3.6% in January.

Read “Sequestration Fears Outweighed By Friday’s Economic Data”

In spite of the good news, a surprisingly weak Q4 GDP estimate put growth at 0.1%, up from the previous -0.1% estimate, but still perilously close to flat line numbers for the U.S. economy.

Europe had a tough week with major sell offs in Italy after its national election, and PMI reports from Europe painted a dismal picture with Spain, Italy and France all coming in below the 50 level that signifies the boundary between contraction and expansion.

Read “Downbeat Economic Reports Challenge European Stocks”

The upcoming week brings ISM Non Manufacturing numbers on Tuesday, ADP Unemployment, factory orders and Fed Beige Book on Wednesday, weekly jobless claims, household debt and unit labor costs on Thursday, and Friday rounds out a busy week with the closely watched February Non Farm Payrolls and Unemployment reports.

And, of course, much attention will be paid to the ongoing standoff over the sequestration spending cuts and how potential furloughs, spending cuts and job losses might affect the U.S. economy.

Bottom line: Major stock indexes and ETFs largely continued to ignore the potential impact of the upcoming sequestration cuts and deepening problems in Europe. How long this can go on remains to be seen, however, for the week just ended, investors appear to have decided that all is well with the world.

S&P 500 Index Takes First Weekly Loss In Nearly Two Months

2013-02-24T23:26:00Z

S&P 500 Index declines for the first week in seven

Friday brought a rally for the S&P 500 Index (NYSEARCA:SPY) and other major U.S. stock indexes, however, for the week, the S&P 500 Index (NYSEARCA:SPY) and most other major U.S. indexes declined.

The S&P 500 Index (NYSEARCA:SPY) fell 0.3% on the week, the Nasdaq (NYSEARCA:QQQ) lost 1% and the Dow Jones Industrial Average (NYSEARCA:DIA) eked out a 0.1% gain, managing to barely reclaim the coveted 14,000 level with a closing price of 14,000.57.

Read “Stocks Finish Worst Week of 2013 On High Note”

In other major markets, gold (NYSEARCA:GLD) gained 0.19% on Friday to close at $1579.60 while oil (NYSEARCA:USO) added 0.3% to finish the week at $93.27. Both gold (NYSEARCA:GLD) and oil (NYSEARCA:USO) suffered sharp declines as the future of the Federal Reserve’s program of quantitative easing came into doubt after release of the FOMC meeting minutes on Wednesday.

On My ETF Radar

chart courtesy of StockCharts.com

In the chart of the S&P 500 Index (NYSEARCA:SPY) above, we can see how RSI has come off overbought levels near 70 to a more normal mid range in the 50s. Momentum continues to decline and the S&P 500 Index (NYSEARCA:SPY) finds itself locked in a narrow sideways range between support at the 1500 level at 1530. This narrow channel has been in play for almost a month and will have to break higher or lower, sooner or later.

ETF News You Can Really Use

Good news on Friday came from a German business sentiment survey that showed improvement and markets cheered Hewlett Packard after the company released its earnings.

Not so good news came from a falling U.S. home builders confidence index and initial jobless claims which climbed by 21,000 on Thursday. The European region is forecast to suffer a decline in GDP of 0.3% for the year and U.S. housing starts declined sharply in January to 890,000 from the previous month’s reading of 973,000.

Other negative economic reports included February’s Markti Flash PMI declining to 55.2, down from 55.8 in January, the Philadelphia Fed report taking a sharp fall to -12.5 in February compared to January’s -5.8, and leading indicators declining slightly in January to 0.2% from December’s 0.5%.

On Wednesday, the Federal Reserve FOMC meeting minutes rattled markets when it was revealed that there is growing concern about the risks, benefits and costs of the Fed’s asset buying program and how it is affecting financial markets. The Fed has decided to do more analysis into the cost/benefits of its quantitative easing program, and this hint of doubt set off a storm of selling in risk assets including commodities, precious metals and stocks.

Next week brings significant market moving news, starting with the Italian election and comeback try of Silvio Berlusconi and ending on Friday with the sequestration deadline.

Read “Must Know ETFs for Italy’s Election”

Regarding the sequestration deadline of March 1st, neither politicians nor financial market participants seem to be particularly worried about the impending government cuts set to trigger that day, but with Congress on vacation and both sides seemingly digging in, next week could be suspenseful as the clock ticks down to Friday.

In economic news next week, reports from the housing market include Case/Shiller home price index, new home sales and consumer confidence on Tuesday, while Thursday brings a closely watched revision to Q4 GDP which initially came in at -0.1% but now is forecast to rise into positive territory, and Chicago PMI.

Friday brings reports focusing on consumer spending and savings, the closely important ISM report for February, University of Michigan Consumer Sentiment and January Construction Spending. But the big news to close out the week will be whether or not the sequestration deadline is averted and how the outcome impacts the S&P 500 (NYSEARCA:SPY) and other global financial markets.

Bottom line: The S&P 500 Index (NYSEARCA:SPY) and other major U.S. stock indexes and sectors face major challenges in the upcoming week as significant economic reports are released and the sequestration deadline is hit.

Stock Market Stuck As Sequestration Deadline Approaches

2013-02-18T19:54:00Z

U.S. stock market remains stuck near all time highs as Congress and the White House squabble over March 1st spending cuts.

The U.S. stock market and its major indexes drifted sideways for yet another week as economic reports were mixed and the clock ticks towards the sequestration deadline of March 1st. Stock market participants remain complacent as VIX, the CBOE Volatility Index, remains near historic lows and major indexes remain overbought. The next two weeks are likely to provide a catalyst, one way or other, for future directional moves.

On My ETF Radar

As described, the stock market remains overbought and momentum has slowed dramatically after the recent run up. Volume remains low and daily moves are extremely tight, suggesting a lack of commitment to push the market higher.

Furthermore, stock market breadth is beginning to weaken as the percent of all stocks above their 50 and 200 day moving averages is in decline and various breadth indicators are turning down.

In the chart below, we can see the percent of stocks above their 200 day moving average and how the stock market is currently at elevated levels which have proven to be tops before a number of both mild and as well as significant declines.

It’s easy to see that the stock market has arrived at a quadruple top level with 82% of S&P 100 stocks above their 200 day moving averages. History would suggest that the stock market has reached a point at which it needs to retrench to some degree before it could advance farther.

Major declines associated with current levels include a 17% dip in 2007, a 15% slide in 2010 and an 18% drop in 2011, all occurring within the space of 3-6 months. Of course, no one can forecast if, when or how deep such a retrenchment might be, however, it will take a powerful catalyst to push the stock market higher from today’s overbought conditions.

chart courtesy of StockCharts.com

ETF News You Can Really Use.

For the week, the S&P 500 (NYSEARCA:SPY) eked out a 0.1% gain while the Dow Jones Industrial Average (NYSEARCA:DIA) fell for the second straight week, slipping 0.1%. The Nasdaq (NYSEARCA:QQQ) followed suit with a decline of 0.1% for the week.

The big news for the stock market hit Friday with Wal Mart declining 2.5% after the leak of an internal company email that described February sales as a “total disaster.” The company has an upcoming earnings report on February 21st which will be closely watched to gauge the health of the American consumer.

In economic reports, the University of Michigan consumer sentiment index rose to 76.3 and the Empire State Manufacturing index regained positive ground after several months in the negative column. Retail sales were marginally higher, initial unemployment claims dropped to 341,000 and industrial production slipped 0.1% in January.

Merger activity was also hot last week as Warren Buffett bought H.J. Heinz Co. and American Airlines joined U.S. Airways in a merger.

Sequestration Countdown

The sequestration countdown continues with just ten days remaining to March 1st when the automatic spending cuts are scheduled to kick in. Last week the Senate proposed a plan that included both revenue and spending cuts which was rejected by the House, and to make matters more interesting, the House voted to go into recess on Friday, leaving just four days in session to make a deal. Both sides appear to be blaming each other for the deadlock and so the possible outcomes start to narrow as the clock ticks.

One outcome would be some kind of real deal to avoid the mandatory cuts but still put the nation’s finances on a better course. The second outcome would be more of what has happened before, a last minute, band-aid agreement that simply postpones the day of reckoning for another day. The third possible outcome is that the sequestration cuts go into effect which would result in immediate and substantial reductions in spending and an unknown amount of turmoil in global financial markets.

Next week brings an array of economic reports including February Home Builders Index, housing starts, the minutes from the last Federal Reserve meeting, PMI and the Philadelphia Fed report, all happening before Thursday in the holiday shortened week.

Bottom line: Significant technical and fundamental factors point to an increasingly risky period for the stock market between now and March 1st. Stock market participants have become accustomed to last minute “saves” by politicians and the Federal Reserve and appear to be betting on another rabbit being pulled out of the hat between now and the end of February. Should the rabbit not materialize, the stock market will likely react in a negative way with increasing volatility ahead.

Learn more about sequestration and stock market trading strategies with the free Wall Street Sector Selector ETF Review.

Stocks, ETFs Slip And Slide

2013-02-10T22:52:00Z

U.S. stock and ETF indexes move sideways for the week.

U.S. stock and ETF indexes closed mostly higher on Friday and mixed for the week as they digest recent gains and continue trading below significant resistance.

On My ETF Radar

chart courtesy of StockCharts.com

A quick glance at the chart of the Dow Jones Industrial Average (NYSEARCA:DIA) gives a clear picture of the present situation. The Dow Jones Industrial Average and its related ETF are near overbought territory at 66 on both daily and weekly RSI and this is a level from which declines oftentimes start. Momentum is waning, as represented by MACD, and it’s quite clear how price has stalled at just below the 14,000 level on the average.

No further upside move is possible without clearing the 14,000 level and holding above that level, and it’s quite likely that move will not be possible without a decline first to work off overbought conditions. There is significant support around 13,300, 13,400 and 13,900 and so one could expect those levels form a floor, at least temporarily, for any upcoming downside move.

In other major markets, gold (NYSEARCA:GLD) slipped -0.21% on Friday to $1668.20 and oil (NYSEARCA:USO) slipped -0.2% to $95.77

VIX, the S&P 500 Volatility Index, also known as the “fear index,” fell 3.56% on Friday, and VIX ETNs also declined with iPath S&P 500 Short Term Futures ETN (NYSEARCA:VXX) losing 2% and VelocityShares Daily 2X VIX Short Term ETN (NYSEARCA:TVIX) dropping 3.8%.

Read “The Great Big Stock Market Disconnect”

”Fiscal Cliff 2:” Sequestration Countdown

March 1st marches closer with its $1.2 Trillion in automatic government spending cuts to both domestic and social programs over the next ten years if Congress and the White House can’t come up with a compromise solution to avoid it.

President Obama has been campaigning for a package of more taxes along with spending cuts, while Republicans are digging in for no more tax increases and just spending cuts to take place during this round of negotiations. Many analysts say that the magnitude of these cuts could trigger another recession, which could already be underway with the initial Q4 GDP printing a -0.1% reading.

Of course we’ve been here before, just remember the New Year Eve 11th hour settlement of “Fiscal Cliff: Part 1,” and both sides now seem to be no closer to agreement or compromise than they were in the summer of 2011 or last New Year’s Eve.

As the clock ticks, we can expect markets to get more nervous as people wonder if yet another 11th hour rabbit can be pulled out of the hat or if the politicians will once again defer judgement day yet for another day. Read “Time To Choose”

ETF News You Can Really Use

For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) was mostly flat, sliding 0.1% for the week after a 48 point gain on Friday.

The S&P 500 (NYSEARCA:SPY) gained 0.57% on Friday and 0.3% for the week, while the Nasdaq Composite (NYSEARCA:QQQ) had a strong week, up 0.5% with a gain of 0.91% on Friday.

Volume was light as the East Coast hunkered down ahead of winter storm Nemo, with total volume off approximately 30% from recent averages.

Friday’s economic reports were light with the trade deficit and wholesale inventories declining in December.

Investors saw good news last week in initial jobless claims which declined, while the Institute for Supply Management Non Manufacturing Sector index rose to 55.2, well in expansion territory. January retail same stores are forecast to be positive and the CBO foresees a decline in the U.S. budget to $850 billion, the first time under $1 Trillion since 2008.

Individual investors have been particularly bullish as mutual fund deposits soared during January and advisers remain highly bullish, as well. Both of these conditions are usually seen as contrarian indicators that typically precede declines.

Next week in economic reports we’ll see the NFIB small business index on Tuesday, the closely watched January retail sales on Wednesday and the usual weekly jobless claims on Thursday. Friday brings a heavy day of economic data with the Empire State Index, Industrial Production and University of Michigan consumer sentiment reports.

Earnings season continues to wind down with notable reports from Avon and Coca Cola on Tuesday, Kraft and Cisco on Wednesday, and General Motors and Pepsi on Thursday.

Bottom line: Stocks and ETFs continue languishing below significant resistance levels in overbought condition. Bullish sentiment is at extremes, cash levels are low and another round of bickering in Washington, D.C. is about to get under way.

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ETFs On The Verge Of A Breakout?

2013-01-14T00:47:00Z

After an explosive New Year rally and with major ETF indexes near all time highs, stocks and ETFs could be on the verge of a breakout to new highs.

After the fiscal cliff was resolved, at least for the moment, the S&P 500 ETF (NYSEARCA:SPY) hit a new high not seen since 2007 and money started flowing back into stocks and ETFs. According to data published last week, more than $18 billion flowed into stocks and ETFs the week of January 9th, some of the highest inflows of assets in 20 years.

Still, on a technical basis, stocks and ETFs remain stalled at significant resistance levels and will need to break higher for this rally to be sustained. Major index ETFs, including the S&P 500 ( NYSEARCA:SPY) Nasdaq 100 (NYSEARCA:QQQ) and Russell 2000 (NYSEARCA:IWM) are approaching short term overbought levels and so could be due for a pause or short correction, however, bullish sentiment remains strong and a break above current levels would likely lead to a sustained and possibly very strong rally.

On My ETF Radar

chart courtesy of StockCharts.com

In the chart of the S&P 500 (NYSEARCA:SPY) above, we can see how the index and its related ETF have returned to bullish status with an upside price objective of 1620. However, we can also see how the index has stalled at the 1470 level and this is the crucial point that will have to be cleared for this rally to continue. If or when that happens, we can expect the resumption of the recent rally. Fundamental headwinds remain, of course, in the form of the debt ceiling debate and Fiscal Cliff Part 2, but the bias seems to favor the bulls at the present time.

ETF News You Can Really Use

Last week’s economic reports were mixed as weekly unemployment claims jumped unexpectedly and missed expectations, however, the NFIB Small Business Index rose. Alcoa reported relatively favorable earnings to kick off earnings season and Wells Fargo posted favorable profits that beat expectation. Read Initial Unemployment Claims Unchanged From Last Year

For the week, the S&P 500 (NYSEARCA:SPY) rose 0.4%, the Dow Jones Industrial Average (NYSEARCA:DIA) added 0.4% for the week and the Nasdaq (NYSEARCA:QQQ) gained 0.8%.

The Week Ahead For Stocks and ETFs

Next week brings a blizzard of earnings and economic reports.

Significant earnings reports will come from the likes of JP Morgan Chase (NYSEARCA:JPM) General Electric (NYSEARCA:GE) and Intel (Nasdaq:INTL) They will be joined by Bank Of America, Citigroup, American Express, Goldman Sachs and Morgan Stanley in the closely watched financial sector (NYSEARCA:XLF)

Next week will also mark the beginning of the new tax programs enacted in the 11th hour fiscal cliff deal as the tax increases start appearing in workers’ paychecks. The Social Security tax holiday is now over which could reduce overall household income by more than $120 billion in 2013. Overall, the current changes are expected to trim 1-1.5% from GDP and the upcoming spending cuts are likely to add to the drag on the already sluggish U.S. economy.

Economic reports will include retail sales and Empire State Index on Tuesday, industrial production and homebuilders on Wednesday, weekly jobless claims, Philadelphia Fed and and housing starts on Thursday, with University of Michigan consumer sentiment rounding out the week on Friday.

Bottom line: The trend is turning bullish, however, significant resistance levels need to be broken for that to be confirmed. Earnings and economic reports will play heavily this week and the upcoming fiscal cliff/debt ceiling debate will return to picture in February and March.

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A Moment Of Truth For US Stocks And ETFs

2013-01-07T00:33:00Z

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After the powerful New Year rally, U.S. stocks and ETFs now face a moment of truth.

U.S. stocks and ETFs started 2013 with a bang as the Dow Jones Industrial Average (NYSEARCA:DIA) gained 331 points from its close on December 31st to Friday, January 4th. The S&P 500 (NYSEARCA:SPY) jumped 2.8% over the same period while the Nasdaq 100 (NYSEARCA:QQQ) climbed 2.4%.

The catalyst, of course, was the partial resolution to the fiscal cliff debate and the positive mood was also bolstered by relatively good news on the economic front.

On a technical basis, major U.S. indexes like the S&P 500 (NYSEARCA:SPY) stand at significant resistance levels, and fundamental factors like earnings season, the upcoming debt ceiling debate and future policy by the Federal Reserve now all come into sharper focus.

The next few days and weeks will likely be volatile as stocks and ETFs stand at a critical crossroads.

On My ETF Radar

chart courtesy of StockCharts.com

The chart of the S&P 500 (NYSEARCA:SPY) above shows how the major index has returned to bullish status with a double top breakout, a “buy” signal, generated on January 2nd. However, the recent rally stopped exactly at significant resistance levels marked by the horizontal red lines and a breakout above these levels is required to confirm the sustainability of the current advance. Failure here would form a “quadruple top” which would be particularly bearish from a technical point of view. Recent stock and ETF action is bullish, but since no one has a crystal ball, we will have to wait and see if the uptrend can continue or not with a breakout above the 1470 level on the S&P 500 Index (NYSEARCA:SPY)

ETF News You Can Really Use

Last week was extremely bullish for stocks and ETFs, with the S&P 500 (NYSEARCA:SPY) reaching a closing high not seen since 2007 on a relief rally generated by the fiscal cliff settlement.

Big news last week included:

11th Hour Fiscal Cliff Deal: Congress acted late in the game to stave off the “fiscal cliff” with a combination of tax increases and a new deadline for spending cuts, effectively establishing a new fiscal cliff deadline in late February. Various estimates of the current deal put the drag on GDP at 1-1.5% with more to come from the likely spending cuts.

Positive Economic Reports: Weekly jobless claims were about as expected and for December, the government reported an employment increase of 155,000 for December and an unemployment rate of 7.8%. The Institute for Supply Management service sector index rose to 56.1 and the ISM purchasing managers index climbed back above 50 to reach 50.7 in December, up from 49.5 in November. Readings above 50 indicate economic expansion. Read “Non Farm Payrolls Increase In December”

On the negative side, the Federal Reserve minutes indicated that the Fed could be “out of bullets” and that further easing could become more expensive and less effective. Read “FOMC Minutes Steal The Show”

The Week Ahead For Stocks and ETFs

Next week brings a combination of economic reports and the start of the all important Q4 earnings season.

Notable items include the NFIB Small Business Survey and Consumer Credit on Tuesday, Weekly Jobless Claims, November Wholesale Inventories on Thursday and Trade Deficit, Import Prices and Federal Budget on Friday.

Earnings season kicks off on Tuesday after the close with Alcoa and a major report from Wells Fargo on Friday. Earnings are widely being estimated as disappointing and so this will be an important earnings season as the recent rally will be looking for support from fundamentals. Of course, many companies have cut expectations and forecasts which could make this earnings season appear rosier than it otherwise would. More than 70% of companies in the S&P 500 (NYSEARCA:SPY) have issued below consensus earnings estimates, close to a record high according to FactSet.com.

Congress and the White House will also return to the forefront as the debate over increasing the debt ceiling gets underway and the new fiscal cliff deadline approaches. Republicans say they want one dollar in spending cuts for each dollar the debt ceiling is raised while the White House says it’s not negotiating over the debt ceiling.

Bottom line: U.S. stocks and ETFs now face a moment of truth after the recent powerful rally. Technical resistance and fundamental headwinds persist along with ongoing political uncertainty. The last debt ceiling debate ended in stalemate in August, 2011, and so created the fiscal cliff after a decline of nearly 17% during July/August, 2011. The current debate over lifting the debt ceiling will play out in tandem with “Fiscal Cliff: The Sequel,” and so expect more volatility and challenges just ahead.

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Chris Martenson: Strategies For Our Changing World

2012-12-20T20:52:00Z

Chris Martenson, noted author and analyst, outlines strategies to survive and prosper in our rapidly changing world.

John Nyaradi: Hi, everyone. I’m John Nyaradi, Publisher of Wall Street Sector Selector, a financial media site specializing in exchange traded funds and global markets. Today, I am really pleased to welcome our special guest, Chris Martenson. Chris, welcome to Wall Street Sector Selector.

Chris Martenson: John, it’s a pleasure to be here.

John Nyaradi: Chris, I really enjoy your work and I’m looking forward to our chat today. Chris has a PhD from Duke University where he specialized in neurotoxicology. He also holds MBA from Cornell in the Finance. He has worked in corporate finance and as Vice President of an international Fortune 300 Company.

He’s the author of a book. “The Crash Course: The Unsustainable Future Of Our Economy, Energy, and Environment,” and has a related video which has been translated to ten languages.

So, Chris let’s talk about what you’ve defined as the “Three Es.” Let’s start with the economy.

Chris Martenson: Well certainly, you know, the economy is where I start in this story and it is the thing I care about the most because if we have a functioning economy we can do all kinds of clever things and if we have a dysfunctional economy, life becomes a lot more difficult. Look at Greece; what they could do three years ago, they just can’t do today.

And I’m very concerned that the United States and much of the developed world is heading exactly in the direction of Greece; it’s just a question of timing. A number of years ago, I was concerned about the housing bubble, but I’ll be honest, the housing bubble was – was simply a side bubble on a much larger bubble which is a credit bubble that began in the early 80’s and has carried through to current times. It was enabled by the ultra accommodative policies of Mr. Greenspan and then Dr. Bernanke, and the ECB has piled in along with the Bank of Japan. And this is really, John, it’s a global phenomenon I’ve been tracking for awhile. We have had borrowing habits that have badly exceeded our income, and like all good parties, it was destined to come to an end.

The problem is that we have a monetary system and an economic model that just don’t work in reverse. They only work in growth mode and we got addicted to really fast rates of growth. We’re talking 6, 7% compounded annual increases in debt over many decades and that came to a stop in 2008 and we’ve been living with the consequences since. I truly believe in my heart of hearts that like every human that’s come before them, all the current inhabitants of the Federal Reserve and other associated central banks will try and print our way of this. I’ve been positioned for the idea that we’re going to print and print and I haven’t been disappointed yet in that outlook.

And my main outlook for the economy is really predicated on one simple notion and that is we had too much debt and our current crop of leaders, both fiscal and monetary, seem delightfully unaware that the old party cannot be resurrected. It’s just not coming back and Plan A is to get that party going again. I don’t think it can happen and if it can’t, we’re increasing the risk of a fairly catastrophic failure of the current system. That’s my underlying macro risk that keeps me awake at night and is the one I’ve fashioned all of my advice around.

John Nyaradi: Let’s talk about the second E, energy.

Chris Martenson: I only really care about liquid fuels at this point because 95% of everything that goes from point A to B does so with liquid fuels that come from petroleum.

What we can say about where we are in the energy story is that the world of $20, $30 per barrel oil is in the rear view mirror. It’s never coming back. Where we are in the story is we now have a world of high energy prices.

The part of the story that concerns me is that I think that we’ve got maybe a couple of decades of decent energy left and after that it starts to get really marginal and much more expensive, much more difficult. So, this is a story that is very simple to understand. Cheap energy is in the rear view mirror; we’re going to have to adjust to a higher energy price world but I’m worried that sooner or later this becomes a world of limited supply and that’s a very different world.

One quick statistic that I think summarizes this, is that at current rates of growth of consumption, China and India by the year 2030 will be consuming 100% of all available oil for export on the world markets. Now, clearly that won’t happen, right? Something will have to change well before then. So, what’s going to have to happen will be some really huge structural changes in infrastructure, how our communities are organized. The overall landscape patterns we have used. A lot of things really have to change and we haven’t gotten on that story yet as a nation. So, it creates some challenges. It creates some risks but it also creates some extraordinary opportunities.

John Nyaradi: That leads us, of course, right in to the third E, the environment. Where are now in this environmental picture?

Chris Martenson: I track the environment in two ways. One is what we do in terms of extracting from it in terms of non-renewable natural resources. So, think of your basic minerals, copper, tin, bauxite, things like that.

John, we can look at certain elements that we extract right now and all known reserves of certain items will be completely exhausted in the next 20 years. And once they are – who knows, maybe we’ll find new reserves or potentially, we’ll switch, we’ll substitute. But on the extraction side, we’ve got a story of depletion. We’re chasing thinner, more diluted, more distant deeper deposits to get at what we want to get.

On the other side, I look at what we’re putting back in to the environment. We have dead zones in the oceans and maybe too much carbon dioxide in the atmosphere. We’re depleting our aquifers. Again we have huge challenges coming from this as well as extraordinary opportunities.

The summary of the Three E’s is that we have this economy that must grow. It’s connected to an energy system that really can’t grow anymore and we’ve got the story of depletion and extraction going on in the environment. And all of that sounds like it’s extraordinarily challenging but it’s simply the reality of the world we live in.

And I’m convinced that those who can be aware of where these trends are going, can position themselves to have a very high-quality life. We can have a future shaped by design, not disaster. But for people who are going to sleepwalk into this and by people, I mean it could be an entire culture, I think it could be a fairly disruptive future.

John Nyaradi: You’re putting all of this together at your website, PeakProsperity.com. Tell us about that, about what people can expect to find if they go to your website, Chris?

Chris Martenson: What we’re trying to do there is have a very rational, fact-based, non-emotional discussion about this material. We recognize it’s fairly challenging material and at Peak Prosperity, we have a number of key offerings. The first is the Crash Course, itself. It’s 20 chapters long, freely available. You can just click on each chapter and follow along and watch through the whole logic and all the data behind the Three E’s. You could find the Crash Course in book form as well if you prefer to read.

Then we have my writings on the site and a lot of people from the community have submitted materials. We have all sorts of materials about how to just basically prepare.

We’re trying to help people understand that this is a time when we have become uniquely vulnerable and that we can mitigate this risk by taking a few simple steps and accumulate a few things, move towards a little bit of resilience in the three big areas.

We believe people should have financial resilience and physical resilience and emotional resilience during this chaotic, anxiety-producing time.

John Nyaradi: If you boil all this down, what’s at the top of your mind, what should we be watching for as we head towards the end of the year and the new year in 2013?

Chris Martenson: Well, we have a Fiscal Cliff coming up on December 31^st, the chance of that being politically resolved now seems unlikely to me for a variety of reasons. I don’t know that we’ll have the necessary camaraderie and quorum in both parties to really make the kinds of concessions that are going to be required to avoid the Fiscal Cliff. And what we’re already seeing around the world is a steadily weakening situation in Europe, Asia as well; I’m convinced both regions are pretty much in recession at this stage. And the United States is not far behind. We’re basically at stall speed.

So, if the Fiscal Cliff happens, it’s an aggravating factor. It’s not a precipitating factor but it certainly doesn’t help. I’m seeing a very high likelihood of recession in 2013 here in the U.S. and, over the longer term, unless Washington D.C. can get its fiscal house in order, the risk of having a pretty dramatic fiscal crisis and then a currency crisis in the U.S. This is something I’m very much worried about. I advise people that this is a good time to be extremely defensive in your posturing and positioning, let’s worry about return of, not return on, principal.

John Nyaradi: We’ve been talking with Chris Martenson, and it has been a wonderful session. Chris holds a PhD from Duke University and also an MBA from Cornell and so has a fascinating combination expertise in finance and science. You can learn more about Chris and his work just by following the link at the bottom of this interview.

Chris, it has been wonderful chatting with you today. Thanks for joining us. I know we’re all looking forward to talking with you again real soon.

Chris Martenson: John, the pleasure has been mine. Thank you.

Learn more about Chris Martenson and PeakProsperity.com

(recorded interview, edited for length and clarity)

U.S. Equities, ETFs Seek Higher Ground, Look For Santa

2012-12-03T00:53:00Z

U.S. equities, ETFs seek higher ground as December starts and investors wonder if Santa will show up for the traditional year end “Santa Rally”

U.S. equities and ETFs were mostly flat on Friday as November drew to a close.

For the week, the Dow Jones Industrial Average ETF (NYSEARCA:DIA) gained 0.1%, the S&P 500 (NYSEARCA:SPY) added o.5% for the week and the Nasdaq 100 ETF (NYSEARCA:QQQ) added 1.4% from last Friday’s close. The Russell 2000 (NYSEARCA:IWM) also put in a good week with a gain of 2.1%.

For November, the Dow Jones Industrial Average (NYSEARCA:DIA) declined 0.5%, the S&P 500 (NYSEARCA:SPY) gained 0.3% and the Nasdaq Composite (NYSEARCA:QQQ) added 1.1%.

On My ETF Radar

chart courtesy of StockCharts.com

In the chart of the S&P 500 (NYSEARCA:SPY) above, we can see how the index has reclaimed its 200 day moving average and broken through resistance at the 1400 level which has been a major battleground for the last few weeks. Next major resistance levels are at the blue 50 day moving average and recent highs between 1430-1460, with the upper band just 3% from today’s levels.

The S&P 500 ETF (NYSEARCA:SPY) will have to break through these levels to reestablish its uptrend, however, the index has already reclaimed most of the ground lost since the beginning of the correction in early October.

As we enter December, the topic of the seasonal “Santa Rally” comes into view and the fiscal cliff could put Santa in jeopardy this year which could be bad news for stocks and ETFs because as famed investor Yale Hirsch said, “if Santa fails to call, bears may come to Broad and Wall.” Read Santa Claus Jeopardy!

ETF News You Can Really Use

The fiscal cliff continues making daily headlines and we can expect more volatility and jousting around that subject during the upcoming week. It was the major topic of discussion on the Sunday talk shows as Treasury Secretary Timothy Geithner said tax increases for the top 2% of Americans were mandatory for a deal on the fiscal cliff.

Geithner said Republicans in Congress will be responsible for hurting the economy if they refuse to raise tax rates on the highest-income earners as part of a deal. He challenged the Republicans to not raise taxes on most Americans to protect the top 2% and Speaker of the House John Boehner said negotiations were getting nowhere, describing the situation as a “stalemate.”

Most stock and ETF investors still expect a deal to be reached, however, both sides appear to be digging in around their sacred cow issues of tax hikes for the top 2% and government spending cuts, particularly in the area of entitlements. So while big stock and ETF investors expect a settlement, clearly the chance of “going over the cliff” grows with each passing day.

President Obama is looking for more than $1.5 trillion in tax hikes, along with spending cuts, while Republicans are pushing for spending cuts in Social Security and Medicare, along with tax reform.

Farther down the road, lies another round of contentious negotiations over raising the debt ceiling which was an unhappy exercise in 2011 that resulted in setting the stage for this month’s fiscal cliff debate.

Twenty nine days remain to the fiscal cliff, however, even more pressing is the fact that just 8 days are on the calendar when both houses of Congress are in session between now and the start of the Christmas recess on December 17th.

In other news, the European Union kicked the can farther down the road regarding Greece, giving the beleaguered island nation until 2020 to reduce its debt to 120% of GDP. The country will try to buy back its own bonds starting on Monday, December 3rd, and so the “Greek Tragedy” continues with high unemployment and a severe recession.

Late Friday in little reported news, Moody’s downgraded the European Stability Mechanism and European Financial Stability Facility, the two main bailout funds for Europe, and this could put more pressure on the Euro (NYSEARCA:FXE) which has recently been in rally mode.Read Additional Downgrades Could Follow

In the United States, economic reports were mostly positive as Q3 GDP was revised upwards to 2.7% and the Richmond and Chicago PMI reports moved into expansion territory. The housing market also posted some positive economic reports with the Case/Shiller Home Price Index rising, pending home sales up and consumer confidence gaining a fraction.

On the downside, jobless claims came in higher than expected and the Fed regions covering Dallas and Kansas City reported those regions in economic contraction.

Personal spending fell 0.2% in October, the first decline since last spring, and income was stagnant and still suffering the effects of Hurricane Sandy, while new home sales missed expectations.

Next week brings a storm of important data including ISM and construction spending on Monday, ADP employment and factory orders on Wednesday, weekly jobless claims on Thursday and the all important November Non Farm Payroll and Unemployment reports due Friday, all of which could move stocks and ETFs.

Bottom line: Market participants appear to want to push major U.S. stocks and ETFs higher to close the year, however, going over the fiscal cliff could derail the widely anticipated Santa Rally.

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ETFs and Stocks Face Fiscal Cliff, Apple Bear, and More

2012-11-11T23:16:00Z

After a tough week of red ink, U.S. ETFs and stocks face the fiscal cliff, a bear market in Apple computer, Europe, a divided government and significant technical weakness.

A volatile week led to modest recovery for stocks and ETFs on Friday, heading into the holiday weekend, as investors digested the post-election landscape.

On My ETF Radar

In the chart of the S&P 500 below (NYSEARCA:SPY) we can get a clear picture of the outcome of recent stock market action.

The S&P 500 (NYSEARCA:SPY) is on a sell signal and has reached its downside price objective of 1380 which is now likely to be revised lower. Major support levels are at the green horizontal lines near 1260, 1320 and 1360. A break below 1260 would clear a path to 1160 on the S&P 500 (NYSEARCA:SPY)

But the big news this week was the bearish breakdown of the index below the blue bullish support line. This type of action doesn’t happen very often and is similar to the break of the 200 day moving average in conventional charting. These blue and red lines tend to act as walls, and once penetrated, open the door to further moves which, in the current situation, would be down.

chart courtesy of StockCharts.com

The Dow Jones Industrial Average ETF (NYSEARCA:DIA), S&P 500 ETF (NYSEARCA:SPY) Nasdaq 100 ETF (NYSEARCA:QQQ) and Russell 2000 ETF (NYSEARCA:IWM) all closed below their respective 200 day moving averages this week and so the technical picture is bleak across the board.

Another red flag for U.S. markets is the bear market in Apple Computer(NASDAQ:AAPL) and its effect on the technology sector and Nasdaq Composite. (NASDAQ:QQQ) Apple (NASDAQ:AAPL) is the world’s largest company and has been in a nose dive since reaching a closing high of $702 on September 19th. Since then it has fallen to close at $547 on Friday, a drop of 22% and placing the stock well below its 50 and 200 day moving averages and possibly creating an “Eiffel Tower” pattern. Beware Of Falling Apples

ETF News You Can Really Use

Now that the election is over, investors are coming to grips with the fact that the same players who brought us the fiscal cliff problem are now gathering at the White House next Friday in round two of attempting to resolve their differences. We all know markets don’t like uncertainty and the only thing that seems certain is that the two sides are likely to disagree, at least at the outset. How To Dodge The Fiscal Cliff

The last time they went through this drill in the summer of 2011, the S&P 500 (NYSEARCA:SPY) fell nearly 17% between July 22nd and August 19th and so it’s no wonder as markets are getting nervous and wondering if this will be “deja vu all over again” in Yogi Berra’s immortal words.

But the fiscal cliff isn’t our only problem as Europe continues percolating on the back burner with growing economic weakness in Germany and a delay of the next round of European bailout money for Greece. EU Stiffs Greece Draghi’s Warning About European Economy Rings True

Beyond that, QE3 appears to have lost its “umph” as the S&P 500 (NYSEARCA:SPY) saw its recent peak the day after it was announced and now has slipped from its recent high of 1465 on September 14th to Friday’s close at 1379, a drop of 5.9% and the lowest level for the S&P 500 (NYSEARCA:SPY) since August.

So now it’s put up or shut up time for Congress and the White House as they start talking Friday and the clock ticks towards December 31st when the combined $600 billion hit of spending and tax cuts slices at the American economy. The Congressional Budget Office estimates that the economy would slip into a mild recession of -0.5% and that unemployment would climb back north of 9%.

And let’s not forget Hurricane Sandy or the weakest earnings season in years, both of which now seem dim memories as events continue to rapidly unfold.

But there was some good news this week as the seemingly never ending election season finally drew to a close and University of Michigan confidence rose to 84.9, its highest level since summer, 2007.

Next week comes the renewed discussion of the fiscal cliff issues and a spate of important economic news. On Tuesday we get retail sales, producer prices and the most recent FOMC meeting minutes. Thursday brings the weekly jobs report, consumer price index, Empire State Manufacturing Index and the widely watched Philadelphia Fed report, followed by Industrial Production on Friday as the fiscal cliff conclave gets underway at the White House.

Bottom line: Expect more volatility and possibly lower prices ahead as these significant events unfold. It’s unlikely that U.S. political leaders will let the economy go over the cliff, but the market is saying that it’s possible and that it’s not happy with current directions. Apple (NYSEARCA:AAPL) is the 900 pound gorilla in the room and its future will be felt in major U.S. indexes and ETF action. However, Apple (NYSEARCA:AAPL) is still up 33% year to date while the S&P 500 (NYSEARCA:SPY) is up nearly 8% with just days left in the year and so bulls can take cheer from this kind of exciting performance thus far.

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U.S. ETFs And Stocks Limp Into Weekend

2012-11-04T21:29:00Z

U.S. ETFs and stocks closed lower on Friday to end a historic week.

Major U.S. index ETFs and stocks lost ground on Friday as New York and the East Coast struggles to recover from the damage of Hurricane Sandy. Friday’s trading session capped a historic week that saw the first two day weather related close of the New York Stock Exchange since 1888.

The week was packed with economic reports that were largely positive and earnings reports that were mixed, but the headline grabber, of course, was Super Storm Sandy, its devastation and its potential impact on Tuesday’s U.S. Presidential election. SPX, NYSEARCA:SPY ETFs Votes Romney

On My ETF Radar

chart courtesy of StockCharts.com

In the chart of the S&P 500 ETF (NYSEARCA:SPY) above we can see how relative strength and momentum are declining, as represented by RSI and MACD, the index is in a downtrend and recently formed a triple top which is a bearish technical indicator. The S&P 500 (NYSEARCA:SPY) is also below its 50 day moving average (blue line) and failed to break above that level in Friday’s trade. The only good news on the chart of this ETF is that it remains above its 200 day moving average (red line) which indicates that the ETF is still in a longer term uptrend.

ETF News You Can Really Use

In economic reports for the week, October’s widely anticipated Non Farms Payrolls report registered a 171,000 compared to a forecast 120,000 and last month’s 148,000. The overall unemployment rate climbed slightly to 7.9% from last month’s 7.8% and so these numbers provided fodder for both political campaigns as it was the last major look at the employment picture going into Tuesday’s election. Double Boost For Non Farm Payrolls

Also on Friday, factory orders for September jumped to 4.8.% from last month’s -5.1%.

Earlier in the week, October ISM came in virtually flat at 51.7 for the month but beat expectations, weekly jobless claims declined and October consumer confidence hit 72.2, the highest level in over four years.

Major U.S. ETFs:

Dow Jones Industrial Average (NYSEARCA:DIA) -1.05% on Friday and -0.1% for the week.

S&P 500 (NYSEARCA:SPY) -0.94% on Friday and +0.16% for the week

Nasdaq 100 (NYSEARCA:QQQ) -1.16% on Friday and -0.3% for the week.

Russell 2000 (NYSEARCA:IWM) -1.6% on Friday and +0.1% for the week.

Gold (NYSEARCA:GLD) $1678.8/oz, down 2.17% on Friday and -1.95% for the week.

Oil (NYSEARCA:USO) $84.86/bbl, -2.26% on Friday and -1.38% for the week.

Next week brings one of the tightest and most closely watched Presidential elections in history, along with significant economic reports including Non Manufacturing ISM, weekly jobless claims and University of Michigan Consumer Confidence.

But the most significant news makers will be the ongoing recovery effort from Hurricane Sandy and how that progress is perceived going into Tuesday’s election and what impact the storm’s aftermath might have on each party’s efforts to get their supporters out to the polls.

After Election Night draws to a close, we’ll have a newly elected President and new Congress, and they will have no honeymoon as the “fiscal cliff” will immediately rear its ugly head with its December 31st deadline, now less than 60 days away. Fiscal Cliff Dead Ahead For U.S. Stock Market

Bottom line: A chaotic week on the East Coast led to more uncertainty in U.S. and global financial markets. Next week we learn the outcome of Campaign 2012 and then face the rapidly approaching fiscal cliff. Many challenges lie ahead with not much time to solve them.

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What's Behind The Numbers: A Chat With John Del Vecchio

2012-10-31T18:33:00Z

John Del Vecchio, manager of Active Bear ETF, discusses his new book, “What’s Behind The Numbers.”

John Nyaradi: Hi, everyone. I’m John Nyaradi, Publisher of Wall Street Sector Selector, a financial media site specializing in exchange traded funds and global markets, and today I’m really pleased to welcome our special guest, John Del Vecchio. John, welcome to Wall Street Sector Selector.

John Del Vecchio: Thanks for having me back, John.

John Nyaradi: Great to have you here, John, like always. Whenever I talk to you, I always learn a lot. John Del Vecchio is the co-founder and co-manager of the Active Bear ETF. That’s symbol HDGE. Active Bear (NYSEARCA:HDGE) is an ETF dedicated to shorting individual stocks that have fundamental red flags around them. Previously, John was a hedge fund manager for Ranger Alternative Management.

He co-advises a newsletter for Motley Fool and is a chartered financial analyst. Today we’re going to talk about John’s new book, What’s Behind the Numbers?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio. It has been well received and has been named Best Investment Book of 2013 by Stock Trader’s Almanac.

So let’s start at the top, John, why did you write the book and what can people expect to get out of it?

John Del Vecchio: We wrote the book in order to help people avoid a big loss in their portfolio. So even though I’m a short seller and I trade, it’s not really a book about short selling. It gives investors tools to identify companies that they may own that are showing red flags that could be a sign of trouble ahead.

Our view is that avoiding a big loss is really more important than generating a large gain. If you lose 50% of your net worth, for instance, you have to gain 100% just to get back even and we feel like anybody, whether it’s a do-it-yourself investor or a more sophisticated professional asset allocator, would do well to learn tools and techniques that will allow them to avoid large losses in their portfolio and that’s what we do within the context of the book.

John Nyaradi: Part One talks about the real risk of stock investing. What is the real risk?

John Del Vecchio: Most stocks are actually losers over time. So imagine we were talking in 1970′s and we were talking about Eastman Kodak and Polaroid and General Motors. Those were widows and orphan stocks back then and now fast forward the clock 30 years and they’re all dead money. Then in the 1990s, we had Intel, Microsoft, Dell, Cisco, those were the four horsemen of the internet. They’ve now been essentially dead money for the last 12, 13, 14 years. So the winners from one generation are generally not the winners of the next and in capitalism, in general, you can’t have a lot of winners. For every Wal-Mart, you’ve got 40 regional retailers that don’t exist anymore because Wal-Mart beat them in terms of distribution, technology, pricing, whatever the case may be.

So picking an individual stock is a risky endeavor because you’re betting on your ability to identify that one company that’s going to be a massive success within a sector or in that particular cycle of the market. So that’s where it’s very dangerous.

It’s also very dangerous in that it depends on really the 20 to 30-year time frame in which you are generating your highest income and your highest savings. If you were investing from 1968 to 1982, chances are you didn’t make any money and you probably lost about 70% in real terms just because of inflation. If you were investing during the bull market from ’82 to 2000, you probably did pretty well. But the last ten or twelve years haven’t been that great.

So while people talk about stocks for the long run, often they’re taking about 100 or 200-year time frames. I don’t plan on living 200 years so the twenty years in which I’m generating my highest income and savings are the most important for me in terms of securing my future.

And the odds are just against you for being able to identify the companies that are going to be the next Google or Apple. So we talk about certain warning signs that ultimately will be reflected in a lower stock price. We walk through income statements, balance sheets, cash flow to help you spot these trouble signs before they occur. And I think the best thing about the book is that these are real time case studies that were written and published in real time and then show you what occurred, you know, 6 months to 2-years after we had identified these things before the stock actually blew up.

John Nyaradi: You talk about two common investing themes, dollar cost averaging and buy and hold, and it sounds like you don’t endorse either of those too much.

John Del Vecchio: No, the problem with dollar cost averaging an individual stock really comes from Bill Miller, the famous mutual fund manager from Legg Mason. His mantra was “Lowest average cost wins.”

And so when stocks go against you, you buy more. The problem is when you own Enron, AIG, Fannie Mae, Freddie Mac, WorldCom, all these companies that were basically bankrupt, and he owned them all, it destroys your performance. So dollar cost averaging during a massive meltdown in the market is essentially putting good money after bad, in our view. Conversely, Paul Tudor Jones is probably the greatest trader of our lifetime and he says that the market tells you fairly quickly if you’re right or wrong and so don’t average losses but actually build on your winning positions.

John Nyaradi: Part 2 of your book is titled “Avoid Huge Losses.” How do you do that?

John Del Vecchio: From a long perspective, we want to be value investors. We want to buy a dollar’s worth of an asset for fifty cents that has a catalyst that we can foresee that’s going to allow that value to be realized. Maybe it’s the sale of an asset or the realization that the asset is worth more than it’s being carried for on the books. We also show there’s real value in having a long/short portfolio that can offer a smoother overall return.

Having some shorts in you portfolio to buffer against the inevitable downturn is really valuable. It seems like the hundred year storm occurs about every three years now.

John Nyaradi: How do you use charts and what’s your favorite chart?

John Del Vecchio: We rely quite a bit on price and volume and relative strength. So my view is that the technical usually leads the fundamental. You start to see selling in a stock before everybody catches on to the fact that the fundamentals are questionable. That might be reflected in high volume when the company is selling off and little volume when it’s rallying. There might be divergences between the price and the relative strength. So maybe the price is reaching new highs but the relative strength is not and that’s because an institution like Fidelity, for instance, can’t sell a stock in one day. They unload it over a period of time. So that shows up in the patterns of the stock over time.

It’s not just fundamental and not just charts. It’s the combination of both that gives you an overall advantage, I think, over most investors.

John Nyaradi: Let’s talk just for a minute about the Active Bear ETF, it is symbol is HDGE or (NYSEARCA:HDGE) What are you doing there?

John Del Vecchio: We choose individual stocks that we think have aggressive accounting or some fundamental deterioration in their business and we short them on the expectation that they might miss earnings or have an SEC investigation or other problems what could cause these stocks to go down in price or at least under perform the market over time. And it’s a combination of fundamental and technical analysis that’s related to what we discuss in the book. The book is not about the fund but it does give you a flavor of how we actually go about analyzing companies and then trading them once they’re in the portfolio.

John Nyaradi: We’re talking here in October, 2012; the election is coming, the fiscal cliff is just ahead. What’s on your mind right now? What should investors be watching out for? What do you see as risks and opportunities here as we head towards the end of 2012?

John Del Vecchio: There’s a very high level of bullishness right now among advisers, about 65%, and it has never been positive for stocks when that’s the case. Volume is falling off a cliff. It’s below where it was in 2007. The cash position of individual investors has been wound down quite a bit. So there’s really not a lot of cash on the sidelines. The National Association of Investment Managers is essentially fully invested at 75% equity; there’s never been a bull market that started at that level. We’re 43 months into this move off the lows in March, 2009, so it’s a very old market.

And I think that the big catalyst, probably at the beginning of next year, is going to be Europe. I just don’t see them solving their problems in 2013.

John Nyaradi: Folks, we’ve been talking with John Del Vecchio and about his new book What’s Behind the Numbers? It is getting terrific reviews and has been named the best investment book for 2013 by Stock Trader’s Almanac.

John is co-founder and the co-manager of the Active Bear ETF (HDGE) and you can learn more about John and his book, What’s behind the Numbers ?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio, just by following the link at the bottom of this interview.

John, it has been a great talking with you today and I know we’re all looking forward to talking with you again really soon.

John Del Vecchio: Great, thank you very much for having me.

Learn more about “What’s behind the Numbers ?: A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio“

(recorded interview, edited for length and clarity)

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US Stock Market Faces Huge Week Ahead

2012-10-29T07:19:00Z

U.S. stock market and ETFs lose ground and face a huge week ahead

Credit: NOAA

It was a rough week for the U.S. stock market and related ETFs as weak earnings reports continued to flow and economic reports were mixed. The upcoming week is packed with more important earnings reports and the action peaks on Friday with the monthly Non Farm Payrolls report and significant stock market volatility can be expected as these reports come in. Furthermore, “Frankenstorm” could have a significant impact on this week’s trading activity.

On My ETF Radar

chart courtesy of StockCharts.com

In the chart of the S&P 500 (NYSEARCA:SPY) we can see lots of negative action in this major stock market index.

Starting at the top, RSI, relative strength is in decline and now at about 38, approaching oversold territory which starts at 30.

The S&P 500 (NYSEARCA:SPY) recently formed a “triple top” at the recent highs around 1450-1470 and this is generally a negative factor as it was unable to break higher and now this area becomes major resistance to moves higher.

The index is in a clear downtrend, now below its 50 day moving average, which indicates short term weakness.

Most importantly, the S&P 500 (NYSEARCA:SPY) now approaches very significant support at the 1400 level and the widely watched 200 day moving average which is commonly thought of as the demarcation line between bull and bear markets.

So weakness prevails with a major test coming up at the 1400 level. A sustained break south of that level and the 200 day moving average would set the stage for still lower prices ahead.

Weekly Stock Market and Major Index ETF Wrap Up:

Dow Jones Industrial Average (NYSEARCA:DIA) -1.8%

S&P 500 (NYSEARCA:SPY) -1.5%

Nasdaq 100 (NYSEARCA:QQQ) -0.5%

Russell 2000 (NYSEARCA:IWM) -0.98%

Gold (NYSEARCA:GLD) -0.6%

Oil (NYSEARCA:USO) -4.6%

ETF News You Can Really Use

It was a rough week for stocks and ETFs as major US stock markets ended lower for the week as a result of ongoing weak earnings and concerns over slowing global growth.

Major U.S. bellwethers including Google, IBM, McDonald’s, Federal Express, Amazon and even Apple have disappointed analysts and investors in recent days, generating a somber tone for US markets. The Fed meeting on Wednesday did little to improve the mood as the meeting concluded with no encouraging words from Dr. Bernanke and his colleagues. Election 2012 Means The Real Fed Bombshells Drop In December

Positive economic news was found in the University of Michigan consumer confidence index which rose to 82.6, its highest level since before the onset of the financial crisis but still coming in below expectations of 83.0. Weekly jobless claims declined, durable goods orders took a big jump and the Chicago Fed economic activity index improved. New and pending home sales climbed and Q3 GDP was revised up to 2.0% from the previously estimated 1.3%. GDP Report Beats Expectations

The week ahead brings more earnings reports from major U.S. companies including Chevron, Visa and Mastercard, General Motors and Ford, Starbucks, US Steel, Barclays, Clorox, Time Warner, Met Life, Exxon Mobil, Royal Dutch Shell and Berkshire Hathaway, among many, many others.

But the bigger news events will likely come from economic reports as the week’s calendar is packed with important data points.

Monday brings September personal income and spending, Tuesday highlights Case/Shiller housing numbers and consumer confidence, Wednesday brings the closely watched Chicago PMI, and then the action really picks up on Thursday with weekly jobless claims, October ADP Employment Report, Markit PMI, October ISM and September Construction Spending. Friday is the peak with September factory orders and October Non Farm Payrolls and Unemployment rate which will be widely covered due to its potential impact on the following week’s Presidential election.

Bottom line: By Friday, we’ll have a much closer look at earnings from major U.S. companies, consumer confidence, housing, manufacturing, European economic conditions and the last jobs and unemployment report before the Presidential election. These fundamental factors coupled with technical weakness, the “Frankenstorm” on the East Coast and the closing days of the Presidential campaign should make for a very volatile and exciting week for participants in the U.S. stock market.

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NASDAQ Tech Wreck 2.0?

2012-10-21T23:45:00Z

With last week’s dismal action in the Nasdaq index and tech sector, October could be another bad month for the Nasdaq.

Much of the headline news last week was focused on the 25th anniversary of “Black Monday,” October 19, 1987, when world markets crashed and the Dow Jones Industrial Average (NYSEARCA:DIA)) plunged 508 points or approximately 24% in one day.

Much has been written about whether or not Black Monday can happen again, and, of course it can, but on its anniversary this year, it’s more important to pay attention to what’s happening today, particularly what’s happening in the tech sector since tech tends to be a leader both up and down in today’s modern markets.

On My ETF Radar

chart courtesy of StockCharts.com

In the chart of the Nasdaq Composite (NYSEARCA:QQQ) above, we can see how the index is in a significant downtrend, with declining momentum and has decisively broken its 50 day moving average. Next significant support lies in the 2900 level, approximately 3% from current levels.

chart courtesy of StockCharts.com

In this chart of the S&P 500 (NYSEARCA:SPY) we can see how the index has formed a triple top, which is generally seen as an ominous development in technical analysis, momentum is declining and Friday’s sell off ended right at the 50 day moving average.

chart courtesy of StockCharts.com

In the point and figure chart of the S&P 500 (NYSEARCA:SPY) we can see that the chart is on a “sell” signal with a downside price objective of 1380, some 3.7% from today’s levels. A close below the blue, bullish support line at approximately 1390 would indicate the onset of a new bear market according to point and figure methodology.

Add it all up, and the technical indicators are looking more and more bearish.

On a fundamental level, one must pay attention to the Nasdaq as it’s loaded with big names like Google (GOOG) Apple (AAPL) Microsoft (MSFT) Intel (INTC) and others. Therefore, the index represents some of the strongest, leading edge companies operating in the technology sector which has become indispensable to the functioning of modern, developed economies. Furthermore, Nasdaq and glamor names like Apple (AAPL) tend to attract the interest of big players in the hedge fund and institutional space, and if the big money is heading for the exits here, this development could portend rougher water ahead.

While October is typically the beginning of the “best six months of the year,” weak action in the Nasdaq sends a clear warning and any kind of a “Tech Wreck 2.0″ must be carefully observed. Read more in Wall Street Sector Selector Weekly Tech Report: Red Flags

ETF News You Can Really Use

Friday’s stock market action caught everyone’s attention as earnings continued on a weak note and questions continued to swirl around the “will they/won’t they” aspects of a formal request from Spain for a European Union bailout.

As we’ve said, Friday was the 25th anniversary of Black Monday and the markets celebrated with widespread declines that saw the Dow Jones Industrial Average (NYSEARCA:DIA) drop 1.5%, the S&P 500 (NYSEARCA:SPY) fall 1.66%, the Nasdaq 100 decline 2.4% and the Russell 2000 (NYSEARCA: shed 1.9%.

VIX, the CBOE S&P 500 Volatility Index, also known as the “fear index,” jumped 13.5% while gold declined 1.1% to $1722.90 and oil slipped 1.6% to $90.61/bbl. Read more in “VIX Breaks 16 with 13% Gain

For the week, the S&P 500 (NYSEARCA:SPY) eked out a gain of 0.3%, the Dow (NYSEARCA:DIA) was essentially flat with a gain of 0.1% and the Nasdaq (NYSEARCA:QQQ) fell 1.3%.

Economic news last week was mixed, as usual in recent weeks, with retail sales and housing starts better than expected and the Philadelphia Fed shooting up to 5.7 in October from the previous month’s -1.9. On the negative side of things, the New York Empire Index improved to -6.2 in October from the previous reading of -10.4 but missed expectations and still remains mired in contraction territory. China continues to “slow,” with a GDP reading of 7.4% which is the lowest in nearly four years.

Earnings continue to take the spotlight as GE and McDonald’s disappointed on Friday to join the likes of Google, Microsoft, IBM and Intel earlier in the week. This week brings earnings news from more than 150 S&P 500 (NYSEARCA:SPY) companies including tech heavyweights Apple, Yahoo, Texas Instruments, Netflix, and Facebook. Also big names like AT&T, Amazon, UPS, Caterpillar, Sprint/Nextel, United Technologies, Procter and Gamble and Boeing are due to report as the week wears on.

In the end, it will be all about Apple (NASDAQ:AAPL) as “One Bad Apple Can Spoil The Whole Bunch“

It will also be a big week for economic reports with new home sales, Markit PMI and the FOMC meeting and statement on Wednesday, weekly unemployment, durable goods pending home sales on Thursday and Q3 GDP and University of Michigan consumer sentiment on Friday.

Bottom line: A big week ahead will determine where major indexes go from here. Spain could be a help if it asks for a bailout, but all eyes will be on earnings, particularly Apple (AAPL) and the tech sector, for any hint that “Tech Wreck 2.0″ could be in the offing.

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Congress Hurts Stocks: A Chat With Author Eric Singer

2012-10-15T18:12:00Z

Congress is dangerous for your portfolio, but Eric Singer, author of “Trade the Congressional Effect: How To Profit from Congress’ Impact on the Stock Market,” has a plan.

John Nyaradi: Hi, everyone. I’m John Nyaradi, Publisher of Wall Street Sector Selector, a financial media site specializing in exchange traded funds and global markets. Today I am really pleased to welcome my special guest, Eric Singer. Eric, welcome to Wall Street Sector Selector.

Eric Singer: It’s nice to be here. Thank you.

John Nyaradi: Eric manages the Congressional Effect Fund which is placed under the symbol CEFFX. He’s also a registered investment adviser at Congressional Effect Management, LLC. And he’s the first to document the general effect that Congress has on daily stock prices. He started that back in 1992 with an article at Barrons. He’s widely published in the business press and now has a new book out from John Wiley & Sons that’s called Trade the Congressional Effect: How To Profit from Congress’ Impact on the Stock Market. So Eric, let’s start at the top, why did you write the book and what can people get out of it?

Eric Singer: I really wrote the book for a couple of different reasons. The first thing is that I want people to understand how much Congress hurts stocks. Over the last 47 years, on the 7,900 days Congress is in session the market goes up in price less than 1% annually and on the 4,100 days that they’re on vacation, it goes up in price 16% annually. And what’s even a little bit more startling is that those numbers go all the way back to 1897, day by day, the same way. Essentially all the gains in the market are attributable to days when Congress is on vacation.

John Nyaradi: So how can individuals or advisers like you take advantage of this and what different strategies do you cover in the book?

Eric Singer: Well, there are several different things that I cover in the book. Number one, each Congressman thinks his job is just to simply get reelected, and so, particularly in the House, they think on a very short-term basis. They have to. So they have a very short-term time horizon. One thing that an investor needs to have is a long-term time horizon and you can use value funds to do that. You have to understand that whatever short term damage they can do to an industry, you can see if there are ways to try to use that to your advantage.

Also, the way my mutual fund works, which is the Congressional Effect Fund, the symbol is CEFFX and for institutional investor, CEFIX, I only invest on days Congress is out of session. So on the days when they’re out of session, I’m long the S&P and on the days that they’re in session, I’m flat. I don’t take duration risk and I avoid legislative risk by not investing on those days that Congress is in session.

John Nyaradi: Tell us about your registered investment advisory practice.

Eric Singer: It’s called Congressional Effect Management. We have private accounts that take advantage of some of the different strategies that are associated with the Congressional Effect and I’m based in New York.

John Nyaradi: We’re talking in October, 2012, we have an election coming up in a couple of weeks and we’re hearing a lot about the so called fiscal cliff. Can you give us your view of that?

Eric Singer: We’re going over the cliff. And the market I think will start to discount that a lot, particularly at election time. I don’t think anything will get done during the lame duck session. Normally, in normal times, the lame duck session is good for the market. The market likes the idea that nothing has to get done. Lame duck sessions are like vacation days for Congress, with roughly the same 15-20% annualized return. However, in the last big lame duck session that we had in ‘08, the market fell at an annualized rate of 44%, just a giant number. And this lame duck session I think is going to have risk because of a combination of circumstances.

Obviously, the overall economy is an issue and we have what appears to be a slowing earnings season. I think that Europe is still a long drawn out process. The international economy has a lot more geo-political risks than it has had in awhile. And on top of that, with the election, I just think that there’s no outcome in the election that’s going to give people certainty. I think that the outcome in the election is going to give people a sense that we’re going to have a lot of continued uncertainty and continued procrastination by Congress. So that’s why I’m pessimistic and I am bullish on gold.

John Nyaradi: I always like to end these talks with an open ended question and that is, what’s at the top of your mind right now, what keeps you awake at night, what should retail investors and professionals be watching out for here as the election approaches and we head for the end of 2012?

Eric Singer: It’s actually quite simple. I think that ahead of the election there’s a lot of reason to go to cash. I think that investors should have some gold going in to the election because no matter who wins, I think gold will wind up outperforming. I think that if the Democrats get a decisive victory, there’ll be a sense that the dollar is going to go down further. I think if the Republicans win, that will expand the population of buyers for gold to include mutual funds. So I think that gold is unusually well-positioned to do well. So my advice is caution in the stock market, be defensive in the stock market, have some gold and pray for more clarity as we go forward.

John Nyaradi: Folks, we’ve been talking with Eric Singer. He’s the manager of the Congressional Effect Fund, a mutual fund traded under the symbol CEFFX and CEFIX for institutional investors. He’s also a registered investment advisor and his firm is Congressional Effect Management. And we’re talking today about his new book, Trade the Congressional Effect: How To Profit from Congress’ Impact on the Stock Market, just out in October. To learn more about Eric, his work and new book, just follow the links at the bottom of this interview. Eric, it has been great chatting with you today. I know we’re all looking forward to talking with you again soon.

Eric Singer: John, thank you so much. I appreciate it.

Learn more about Eric’s book Chat with Eric Singer

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Nice Bounce And Another Big, Big Week

2012-10-07T19:32:00Z

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Major U.S. stock indexes and ETFs enjoyed a nice bounce in a big news week and now face more market moving news ahead.

U.S. stock indexes and ETFs advanced this week after nearly three weeks of consolidation on good employment news and the hope for more central bank intervention. It’s election season and Presidential politics will start to play a roll in market action, along with the rapidly approaching fiscal cliff and Dr. Bernanke and Mario Draghi continuing to pull the levers behind the curtain.

On My ETF Radar

chart courtesy of StockCharts.com

As always, the chart tells the story, and in the point and figure chart above we can see that the S&P 500 (NYSEARCA:SPY) is in a bullish configuration with an upside profit target of 1550, some 6+% above today’s levels. This week, the column of “Os” was replaced by a column of “Xs” which indicates that demand has regained control of the markets. However, the advance stopped exactly at the resistance level of 1470 and so now this major index will need to close convincingly above that level for this uptrend to continue.

All of this short term action takes place within the context of an ongoing bull market with downside support at 1440 and a trend change/major support at 1370.

ETF News You Can Really Use

Economic News:

It was a big data week with September Non Farm Payrolls and Unemployment taking the headline spot on Friday. September Non Farm Payrolls rose to 114,000, beating expectations but below August’s 142,000, and unemployment dipped to 7.8% from 8.1% the month before. The 7.8% level is the lowest in nearly four years, and when coupled with weekly claims beating expectations, more evidence suggests that easy money policies might be starting to work. Adding to the hopeful atmosphere, ISM Manufacturing and Non Manufacturing improved and car sales rose.

In California, gas prices touched $5/gal. as Costco and other retailers shut down their passenger gas station operations in Southern California. Gas in the Golden State hit at an average price all time high and one can only wonder how this will impact the nation’s largest economy if this situation continues.

Earning reports season is upon us again and this week marks the start of that quarterly pageantry.

Tuesday brings numbers from Alcoa and Yum while Costco checks in on Tuesday and financial giants JP Morgan and Wells Fargo are scheduled to report on Friday. This quarter’s earnings reports are forecast to be some of the lowest in months with 80% of companies forecasting low expectations and reduced earnings.

For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1.3%, the S&P 500 Index (NYSEARCA:SPY) jumped 1.4%, the Nasdaq 100 (NYSEARCA:QQQ) added 0.6% and the Russell 2000 (NYSEARCA:IWM) tacked on 0.6%.

In addition to the start of earnings season, next week brings the Federal Reserve Beige Book report on Wednesday, weekly jobless claims on Thursday and producer prices indexes along with University of Michigan consumer sentiment on Friday.

How Can I Profit and Best Bets for ETFs

Major US stocks, ETFs and indexes remain at overbought levels and so are subject to short term correction, although we anticipate that prices will move higher as we move into the fourth quarter of 2012. Strong sectors for last week include:

Global FTSE Greek 20 ETF: (NYSEARCA:GREK) +15.4%

iShares MSCI Italy ETF (NYSEARCA:EWI) +5.8%

iShares Dow Jones US Construction Index (NYSEARCA:ITB) +5.9%.

Bottom line: Stocks and ETFs rose to recent resistance levels. A break above current levels would by bullish while a deteriorating situation in Iran or Europe could derail the ongoing recovery.

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