The Weekly Predictor Updated February 5, 2010

The Dollar – for some time now, has traded opposite the S&P 500.  The rising dollar, in large part, is exerting downward pressure on the S&P.  Scroll down to see the first chart in Bonding With Bonds.  Concerns over sovereign (foreign government) debtors ability to pay weighed heavily on the market last week.  For the fourth week in a row, the S&P 500 ended in the red.

The Weekly and Daily Predictor remain a Sell since January 20th, which means you can’t Buy anything.  Seeing a Divergence, I did fiddle with a Limit Order today but it expired out of the system worthless.  My one piece of good news is a Divergence appeared on the S&P 500 chart.  That is great news!  We should see a Buy signal soon.  Here check it out for yourself:

However, the Summation Index is still not impressed with market breadth:

If we are as smart as we think we are, we will wait until the SI turns black and a Predictor Buy signal before we put a Limit Order to work.  Saving the worst news for last, I really don’t like the looks of this Bullish Percent Index at all. 

That chart is telling us that 64 percent of the S&P 500 is in a Point and Figure Buy signal.  More importantly, the trend is down.  What I don’t like to see is all that red pointing straight down.  We do make more money when the market gives us a good entry point.  The overall health of the market is one of the things this chart can tell us.  It also lets us know if we are getting into a rising market early on.  The last thing you want to be on Wall Street is late to the party.  The time to leave the party on Wall Street is when those attending think the fun they are having will last forever.    

As I said last week - resistance is at the November 1^st 1035.4.  A 10% correction would bring the S&P down to 1029.38.  Selling is likely to end at either of those two numbers.  If not, the next stop for buyers to step in is 1019.95.

Thanks to all - for purchasing my book Manage Your Own Money, which set a record for the most sales in a month here in January.  For those of you new to my trading system, I am now using Morningstar.com to house all my Watch Lists and Portfolio Tracking.  It is free but you do need to give Morningstar your email address and set a password to access your personal Watch Lists.  You can access the Morningstar’s website by clicking here: http://www.morningstar.com/   

I recently wrote this answer to a Morningstar article called, “Should Asset Allocation be more Tactical?”

As a retired Certified Financial Planner, I never bought in to Strategic Asset Allocation or Buy and Hold.  Strategic Asset Allocation rebalances based on the calendar say Quarterly or semi-annual.  It sells your best asset classes and buys your worst under performing asset classes.  The problem with Strategic Asset Allocation is that investors have to sell at distressed levels and nothing will hurt your net worth more that. 

Strategic Asset Allocation adjusts your asset allocation based on market conditions.  Technical analysis of the market is used to adjust exposure to various asset classes.  Before the Predictor came to me, I used the 50-day moving average for my first adjustment.  If the 30-day moving average fell through the 50-day MA, a second adjustment is made.  Crossing through the 200-day MA was always the straw that broke the camels back.  The Predictor Sell Signal came on May 20, 2008 and the Buy Signal came on March 11, 2009.  You must trade with the trend or you will lose.  It is as simple as that. 

After I retired, I wanted to pass my money management technology on to others and help a worthy cause at the same time.  All royalties from my book Manage Your Own Money goes to charities that care for abused, sick, or injured animals.  Here is a link to Amazon.com:

http://www.amazon.com/Manage-Your-Own-Money-professional/dp/1439202117/ref=sr_11_1?ie=UTF8&qid=1221072523&sr=11-1

Have a really great week!

Dan Clemons author Manage Your Own Money

This video shows The Predictor trading JNJ:

http://www.youtube.com/watch?v=cNk7Et2G1TM

This Video discusses 10 things every investor should know:

http://www.youtube.com/watch?v=Omg9ymZAJ6k

S&P 500 Predictor and Summation Buy and Sell History

Special note:  Summation Buy and Sell signals are not valid when the market is Trending.

Predictor Sell on Janaury 20, 2010 -

Predictor Sell on October 1, 2009 - Predictor and Summation Buy on October 8, 2009

Summation Buy on July 9, 2009 - Summation Sell September 22, 2009

Predictor Buy on March 11, 2009 – Predictor Sell on June 1, 2009

Predictor Buy on November 24, 2008 – Position Closed by Summation Sell on January 13, 2009

Predictor Buy on July 21, 2008 – Position Closed by Summation Sell on September 9, 2008

Predictor Buy March 17, 2008 – Predictor Sell on May 20, 2008

Bonding With Bonds February 5, 2010

Jobs – Jobs- Jobs – There were 20,000 jobs lost in January, which was below consensus.  BLS reported unemployment fell by 378,000 bringing the total unemployed to 9.3 million.  That is a mixed picture indeed.  As you can see here, the Dollar is trading opposite the S&P 500:

 

Money – coming out of stocks increased the demand for bonds as buyers bid higher the 30-year US Treasury:

 Higher prices pushed yield on the 10-year US Treasury down to 3.59%:

Just when you least expect it, something good on the Bond Desk comes your way.  The good news is that a CD yielding 3.646% net of commission came my way.  The bad news is that it expires out of the account later this month.  There was plenty of contract size (number of bonds for sale) so I was plenty pleased.

There is still no Buy signal on BDV that I talked about in last weeks blog:

Seeing a Divergence, I placed a Limit Order in the que but the price did not come to me so it expired out of the system at the end of the day.  Blackrock Dividend Achievers sells covered call options against stock held in the portfolio, which adds to dividends paid by blue chip stocks in the portfolio.

How much money to allocate to individual bonds and how much money to allocate to bonds maturing in years 1, 2, 3, and 4 is in my book Manage Your Own Money.  

My current bond trading strategy looks for Investment Grade Corporate bonds and CDs maturing in 15-months or less.  The reason to stay short is because inflation is coming sooner than we might think.  I look for bonds that are mispriced giving me a higher yield to maturity than another bond of the same issuer maturing within a few weeks of each other.  Don’t forget that short maturity’s reduce risk more than any other measure.  It is always smart to avoid companies on Credit Watch.  Staying well diversified, limiting the number of bonds invested in any one company, and checking with Moody’s before making a purchase will add confidence to your trade.  Since bonds are backed by shareholder equity, it is smart to require a share price of $10 or more!  Here is a short video showing bonds available on the Bond Desk:

http://www.youtube.com/watch?v=rEj68ZZGwTw

The most bond friendly broker dealer is in my book Manage Your Own Money.  All royalties care for abused, sick, and injured animals.  Who will care for them if we don’t?      

See you next Friday!

Dan Clemons author Manage Your Own Money

Authors Note: January 15, 2010

All royalties from the sale of Manage Your Own Money are donated to charities that provide care for abused, sick, and injured animals.  Our January donation went to the Best Friends Animal Society – Haiti Animal Rescue: https://www.bestfriends.org/donate/Haiti.cfm?utm_source=delivra&utm_medium=email&utm_campaign=Haiti+Animal+Rescue.  Thank you for helping to support this very worthy cause.

Daniel J. Clemons author Manage Your Own Money

To watch a short video of Dan Clemons describing how to manage a 401k plan click here:

http://www.youtube.com/watch?v=UfSQY-JlEWs

To read what others are saying about the book, click here:

http://www.amazon.com/gp/reader/1439202117/ref=sib_dp_ptu#reader-link

To put The Predictor on your desktop click here:

http://www.amazon.com/Manage-Your-Own-Money-professional/dp/1439202117/ref=sr_11_1?ie=UTF8&qid=1221072523&sr=11-1

Want an Exit Strategy to avoid corrections and bear markets?  The Predictor guides the investor in and out of positions with precision.

Post Your General Questions and Comments about Money

Everything that is super important for you to know about money is included in my book, which you will find on sale for $26.60 right now at Amazon.com a 21% discount!  

With very warm wishes,    

Dan Clemons author Manage Your Own Money

Important Disclaimer

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned on my blog may not be in the best interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained on these pages does not constitute advice on the tax consequences of making any particular investment decision. This material is not intended for any specific investor and does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation on any material presented, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. 

Chart of The Week – Updated January 29, 2010

Take a look at these two funds on the chart below.  It looks like one fund is making money while the other one is losing money.  It also looks like if you owned both funds at the same time, you would make no money at all.  They seem to look like they move just the opposite of each other.  How could Wall Street get two funds that perform exactly the opposite of each other?

 

Both funds are the S&P 500.  One is a long position, which is the solid line.  The other is shown in candlesticks and is a short position.  Mutual funds are not easy to manage because they have early redemption fees and then there are taxes to consider.  So, how do you protect a portfolio when the market trend is down?  You can purchase SH an ETF that holds a short position in the S&P 500.  At sell signals, rather than sell something, a portfolio can be shifted into neutral by simply adding SH.  Results will vary depending on the size of the portfolio and the amount of the short and how well the investments in the portfolio correlate with the S&P 500.  Please read the Disclaimer above before investing in anything you read about on this blog.  I would like to thank my good friend Chip Anderson at Stockcharts.com for the use of his beautiful charts in my book and here on my blog.