Tuesday, July 28, 2015

A Country ETF Than Can Double Your Return

"The time to buy is when blood is running in the streets".---Baron Rothschild

It feels much better to buy assets while they're rising, but it's usually smarter to buy after they've been fallen for a while."-- Howard Marks

According to the Ivy Portfolio the median country returns from 1903 to 2007 is 10.65% (all years), and 14.9% after three down years in a row.

Recent data by Dimson, Marsh, Staunton database showed a median country returns of 8.74% (all years) and 15.94% after 3 down years in a row, both suggest that you will double the median return of all years if you own a country etf that is down 3 years in a row.  It's a very rare occasion that only happens 3% of the time.

Currently Brazil $EWZ is down multiple years in a row and is the only candidate right now to possibly double the median country return.  I bring this up now because recently there has been massive put buying in $EWZ and just today Standard and Poors lowered their rating on Brazil to a negative.  The ETF responds by bouncing from the 2008 lows, printing a hammer on the daily chart, and possibly a failed breakdown on the weekly chart, all which I believe has bullish implications in the short term.

With $EWZ down 47.76% from its 52 week high, 20% below its 200 day moving average, down 13.78% in the last month, -22.58% in the last 3 months, and 61% in the last 5 years.  If time is on your side and you have the stomach for it you may want to consider this ETF.  I'm sure it won't be an easy ride.

p.s on a adjusted close basis EWZ was up in 2012.

fzorrilla@zorcapital.com   @Zortrades


Thursday, July 23, 2015

These Charts Have The Bears Chomping at The Bit

The charts underneath show clearly the recent deterioration of breadth that have the bears chomping at the bit thinking that market a pullback is inevitable.  On the flip side the bulls believe that it is only a matter of time before the indices pull all the lagging stocks up and give us a rising tide lifts all boats situation.  Time will tell, but it is easy to see why both camps are so adamant.

Here we have the Russell 2000 versus stocks up 25% or more for the quarter and stocks down 25% or more for the quarter.  You can see that the amount of stocks down 25% or more for the quarter is rising steadily while stocks up 25% or more in the quarter is in a downtrend while the index sits near highs. (stockbee indicator).

If we take the stats above and cut them in half; stocks up and down 13% or more in the last 34 days shows the same trend, weak getting weaker. (stockbee indicator).

On a shorter term basis here we have the Russell 2000 versus the amount of stocks up and down 25% or more in the last 30 days.

Yesterday I was astonished by the amount of stocks that hit fresh new 1 month lows with the indices pretty much flat on the day.

The amount of fresh new 3 month lows also spiked yesterday.

These breadth stats show exactly why we continue to hear about the terrible breadth that the market as whole is exhibiting, but at the same time you have to appreciate the resiliency of the indices.  I think soon enough there will be some catching up, either stocks catch up to the indices or the indices catch up to the stocks.  Stay tuned and adjust accordingly.

fzorrilla@zorcapital.com   @Zortrades

Tuesday, July 21, 2015

Don't Be Fooled By These Long Term Charts

Anytime stock market studies are done the results or the outcome are plotted on a long term chart of usually the Dow Jones Industrial Average or the SP500.  It might be a breadth study, sentiment, average intra-year draw-downs, average yearly gain, etc...Any and all negative studies plotted on a long term chart will look as a non-event, every correction will also look like a non-event, and because you are looking at history and know what the end result is that will give you a false sense of security that you can withstand any and all corrections and everything should be disregarded.  This is the furthest thing from the truth.  "Everyone has a plan until they get punched in the mouth"

But more importantly, I believe that plotting the outcome of negative or positive studies on a long term chart of the DOW and or the SP500 is a little misleading.  If your entire portfolio consists of only the DOW JONES equivalent ETF and or the SPY then you can take these studies to the bank. However, if like most investors your portfolio consist of individual stocks then these studies can be extremely harmful to your portfolio.  It can give you a sense of complacency that since the "market" has shrugged off every major negative event overtime that your stocks will do the same thing as well. But most stocks unlike the major indicies don't come back, most go out of business, or show a negative return over their lifetime. 

  “The Russell 3000 index measures the performance of the largest 3000 U.S. companies, 98% of the investable U.S. equity market.  40% of the stocks had a negative return over their lifetime, 20% of stocks lost nearly all of their value, 10% of stocks recorded huge wins over 500%.  80% of the gains are a function of 20% of the stocks. --The Ivy Portfolio

If time is on your side then you can turn a blind eye to every major negative event and use them as a buying opportunity if your entire portfolio consist of major index etf's; SPY, DIA, QQQ, IWM.  But stay extremely vigilant with individual stocks and don't fall for these studies if your portfolio mainly consist of stocks.  Remember the nifty 50, Tandy, Dell, CSCO, AOL, the 3D stocks, and pretty much every stock that was a leader at some point in their lifetime, a majority if not all never roared back like the Dow and SP500 have done after corrections, major events, or the 2009 to present huge wall of worry.  Don't be fooled.


Monday, July 20, 2015

The Indices Are Showing A Tremendous Amount Of Resiliency Which Means...

Over the weekend quite a few people pointed out some of the negative divergences that they are seeing.  As usual those who point them out are perceived to be short the market, under invested, perma bear, etc....This might be the case or may not be the case, you never know with twitter, but divergences are divergences and what you do with the information is more important.

I'm in the camp that 99% of negative divergences in a bull market should be ignored and or be left to those who are nimble in the short term.  For the rest (majority) one should continue to wear the rose colored glasses until the music stops.

The chart underneath is the QQEW (equal weight to all stocks nasdaq 100 stocks) versus QQQ which gives a higher weight to AAPL (15.41%), MSFT (7.19%), GOOG (3.57%), AMZN (3.48%), FB (3.46%).  We all know that Apple, Google, Facebook, and Amazon had tremendous moves in the last 5 days and that in itself explains the huge spread that has taken place between the QQEW and QQQ in the last 5 days. Some will view the two charts underneath and tell you that this is a huge negative divergence, the opposite side will tell you how resilient the indices are and that only price pays, etc...

The same can be said with the SPY and the equal weight SPY which is RSP;

With the charts underneath you can also take the negative divergence side of the debate or the resiliency of the indices debate.

Here we have the Russell 2000 compared to the amount of stocks up 25% or more for the quarter and down 25% or more for the quarter.  Interesting enough we almost have double the amount of stocks down 25% or more for quarter than we do up, shows you the resiliency of the indices or the huge divergence.  The side you take normally is dictated or heavily influenced by your positions.  If you heavily invested you will probably take the resilient side and vice versa.

When you take the same stats and compare them to the SP500 the resiliency and divergence is even greater because the SP500 hit an all time high today.

Below you can see both the resiliency and divergence of the SP500  when you compared the average of all SP500 stocks above their 3,5, and 10 day moving average.  While the SP500 hit an all time high today the average of all SP500 stocks above their 3,5, and 10 day moving average actually ticked down.

I can probably show you 5 more charts that will show you the resiliency / negative divergence that we are seeing now.  At the end of the day what you do with the information is more important than what you think of the information.

As for me, just by looking at the charts and the stats of the SP500 and QQQ it has not been wise to chase INDEX highs (individual stocks are a different story), the money has been made buying the dips when all those who preached all the positives when the market prints highs become negative after multiple down days in a row.


Thursday, July 16, 2015

How To Save A Tremendous Amount Of Money Swing Trading

Many traders believe that how you manage a trade is the most important part of a trade, and I agree. But, to me, entries matter and they are important.  In the video below I share a tip on how to save tremendous amount of money and emotional capital as a swing trader.

Getting Started Is Easy

Don't Be So Quick To Short Fads

There is a big difference between a company and its stock.  Many times stocks that are extremely overvalued go on short term runs that defy logic, such is the case with many new companies.  In the video below I pin point what to look for before you jump the gun and short an over-hyped IPO.

Wednesday, July 8, 2015

6 Things You Should Know Before You Sell Everything

Before you jump the gun and call it quits on the market based on a tough week for the market, I want you to know a few things;

1.  Since 1980 the average intra-year decline in the SP500 has been roughly 14%.  26 out those 34 years despite the average intra-year drop the market closed positive, 76% of the time.  That does not mean that the declines were not painful, its just a reminder that the market goes UP and DOWN not up OR down.  And, draw-downs are unavoidable, there is no sense in trying to avoid what cannot be avoided.

2.  Its never been wise to be a bear for too long.  In the last 89 years stocks closed down 20% or more 6 times (7%).  35 out of the last 89 years stocks delivered 20%+ returns, (39%).  Try to minimize your losses but never forget that the real game is played on the long side.

3.  When the market gets volatile less is better and a proven market timing system might be of tremendous benefit, this will keep you from jumping the gun.  Investors Business Daily market timing system comes to mind.  You can find this information daily in the B-section of the newspaper. What you want to be in the look for is when their market pulse goes from "market in correction" to "market in confirmed uptrend".  I found that their market timing system works a lot better after corrections rather than when they are calling for a correction, no system is bullet proof.

4.  Time is your best investment tool, better than RSI, sentiment polls, MACD, etc...Cut losses, live to fight another day.

5.  Realize that there is a time to be aggressive and a time to just move a couple of pawns around just get a feel for the environment.

6.  Stay thirsty, don't disengage.

Getting Started Is Easy

Tuesday, July 7, 2015

Is This The End For Chinese Stocks

Right here, right now, if you go through all the Chinese names you will notice they are all gapping down pre-market.  All of these stocks seem to me as they are stretched to the downside here in the short term (1-10 days).  And, this pre-market gap down feels more like a short term exhaustion move than a continuation of the trend of the last month.

Current State of The Market, Sell, Hold, or Buy

Based on the recent market action its hard to make a case to buy an up opening like we are walking into today.  Greece is still acting as an overhang but the real issue might be what's going on in China, will it have any spillover effect is the question.

Biotechs continue to standout while most other sectors continue to struggle.  For the first time in a while we have more stocks down 25% for the quarter than up 25% for the quarter (Stockbee Indicator) all this while the indices are a stone throw away from all time highs.

We have seen a spike in stocks making new 1 month lows and 3 month lows.  These type of spikes have led to short term bounces in the past except in October when the spikes led to more downside.

I hate to use twitter or stocktwits to gauge sentiment because you really don't know what a person is doing.  Their stream might give you a certain impression that is far from reality.  However, a great deal of people have been bearish for a long time and they still are, from a contrarian standpoint that is bullish. On the flip side I think that many have grown to be complacent because of the way the market has rebounded ferociously every time it looked and felt like it was going to break down.  This has trained people to look the other way and or ignore their stops in hope that the market will bail them out as it has over the last few years, this is when it gets dicey.

Summer is here, slow down.  Keep a close eye on biotechs; $XBI, $IBB, for clues, a breakdown in that sector could weigh on the market, but so far they continue to be strong like bull.