Another Stock Market Indicator

January 10, 2023 by

In the past, I have illustrated a few ratios that have measured investor sentiment on future stock market direction.

In this post, I will add another, the relative strength between the consumer discretionary sector (XLY ) and consumer staples(XLP).

Historically when the consumer discretionary sector (XLY) outperforms the discretionary sector(XLP), the overall market (SPY) has been bullish.

The relative strength swap doe not always indicates a change, but the trade-off is always worth noticing.

The following is the relative strength of XLY vs XLP with the SPY as of the close of Monday, January 9, 2023.

As illustrated, XLP is still doing better than XLY.

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Back to the Beginning

July 12, 2021 by

In 2010 when I started this post, I recommended that one of the better methods of selecting equities was to find those sectors that were showing high relative strength with positive momentum. Selecting the highest relative strength sector with positive momentum should outperform.

I chose four sectors as illustrations.

XLE: Energy (Green)

XLY: Consumer Discretionary (Red)

XLU: Utilities (Cyan)

XTN: Transportation (Yellow)

The following chart as of the close of Friday, July 9, 2021, shows the current relative strength of these four sectors.

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AMC, one of the “meme” stocks in the news.

June 1, 2021 by

There has a lot of news recently regarding so-called “meme’ stocks.

Last Thursday, The Wall Street Journal on B1 stated “Meme Stock Rally Resumes”. The article mentioned GameStop, AMC Entertainment Holdings, and Express Inc.

Meme stocks are those securities that have been discovered by a group of individual investors. The stocks have unusually large short positions, are usually overpriced, and share spikes of rapid growth in a short time period. Actual valuations are not important. The fear of missing out (FOMO) is a large reason to purchase, Volatility increases during times of panic-selling.

One of the most recent mentioned is AMC which recently completed a $230 million capital raise.

The following graphs show the recent price activity of AMC. The last price is as of 12:15 PM on Monday, June 1, 2021.

15 Minutes followed by daily.

Green lines represent times of purchase. Blue lines represent times of closing out positions.

 

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Artificial Intelligence and Trading.

April 12, 2021 by

In the last few weeks, I have investigated a few AI(Artificial Intelligence) platforms in the hope that one or more vendors of this new technology could enhance my trading results.

The quick answer is maybe, but the research has found a troubling example of what could go wrong.

A new  ETF that is based on AI is was offered on October 17, 2017: AEIQ.

To quote from its informational site:

“The fund applies proprietary algorithms to artificial intelligence (AI) technology which can process over one million pieces of information per day to build predictive financial models on approximately 6,000 U.S. companies. The technology continually analysis data and models in its active stock selection process, and derives an optimal risk adjusted portfolio consisting of companies with high opportunities for capital appreciation. The fund is actively-managed and discloses all portfolio holdings daily.”

The informational information About AEIQ also states that “The system mimics a team of 1,000 research analysts working around the clock analyzing millions of data points each day.”

“Harnesses the power  of IBM Watson.”

The performance of this ETF should answer the basic question that I have had in my investigation; Does AI work?

The answer as it relates to the AEIQ ETF is sometimes yes, sometimes no.

The following graph of the relative performance of AEIQ and the SPY ETF, which represents the S&P 500 index starting in August 2020.

The AEIQ ETF started life on 10/17/2017 at an offering price of $25. On Friday, April 9, 2012, it closed at 39.48, an increase of 57.92%

The S&P 500 on 10/17/2017  was 256.25. It closed on Friday, April 9, 2021, at 411.49, an increase of 60.58%

The above chart, like all the other charts on this bog, has green, blue, and red vertical lines.  Green vertical lines are the place where AEIQ is performing, on a relative strength basis, better than the SPY ETF and AEIQ has positive momentum. Red vertical lines show the times that AEIQ is performing worse than the SPY on a relative strength basis and has negative momentum. Blue lines are the indication to close the current position.

The better way to use the AIEQ ETF would be to invest in  AEIQ  when, on a relative strength basis, it is stronger than the SPY ETF and AEIQ has positive momentum. The basic swing trading method I have been talking about in this blog since day one.

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“Echo Trades”

March 29, 2021 by

Unless you are in a cloister or on a desert island, most of us have recently been contacted in one way or another by the recent Rob Booker promotion. The latest is about a discovery by an East Tennesee farmer named Jeffrey Turnmile who has generated, in the latest 12 month period, a return in excess of 4000 percent. I have nothing but respect for Rob Booker, who in the past has promoted many such “discovered” traders with outstanding results. Mr. Turnmile has found what they call; Echo Trades.

The reverse engineering of this amazing ‘discovery’ looks very similar to what I have been talking about for the last 10 plus years been discussing in this blog. Identify the trend, then jump in.

The main difference is that Mr. Turnmile, after discovering the trend, waits for a pullback.

He proposes buying trend continuations in an uptrend, wait for a pullback, and at the continuation of the basic trend, trade the continuation.

The continuation becomes the ‘echo trade’.

That’s all folks. Easy Peasy.

An example of what can be accomplished with this basic Echo Trade strategy is the following chart of EPD, Enterprise Products Partners.

One of the scanning services generated this security. Strong buy with analysts price target greater than 20% with a dividend yield greater than 2.5 %.

The weekly chart of EPD shows an uptrend beginning at the end of November 2020.

 

The above, daily chart of EPD. The  Green vertical lines showing BUY. The blue vertical lines showing a CLOSE long position.

Continuing this practice in this security should result in nice continuing profits.

A portfolio of similar securities could possibly replicate Mr. Turnmile’s results.

Please contact me at 516-902-7402 with any questions.

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