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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ASML may have been a better investment for Berkshire?

November 17, 2022 by

ASML manufactures equipment to make semiconductors. Taiwan Semiconductors is a customer.

The following shows the relative strength of TSM versus ASML.

TSM is stronger when the vertical line is GREEN. ASML is stronger when the vertical line is RED.

It may make an excellent pairs trade. The correlation is very high.

Prices are pre-opening on November 17, 2022.

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PayPal

February 7, 2022 by

Paypal has been one of the more active stocks for the last few weeks.

Obviously, someone or a group of someone had a head start on the decline.

The following graph of the weekly activity should be helpful in coming to that conclusion.

In October of 2021, the decline began.

The daily chart should through further light.

As in all previous charts, the red line signifies SELL, the Green line, BUY, and the Blue line indicates close out the previous position

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Apple

July 11, 2019 by

Apple shares declined on news that sales of the iPhone were declining because of the downturn of consumer spending in China. Whether you believe that spin or realize that the costs of the new models do not offer a serious reason to upgrade the older phones is of little concern. Whatever the real reason, Apple stock went down.

Apple is one of the most widely held and more importantly one of the more actively traded stocks in the world. Share and options are traded with very small bid-asked spreads.

From a swing trading perspective, the following attached charts should be of some interest.

Daily prices are at 8:00 on Thursday,  July 11 , 2019:

 

 

 

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Dividend Aristocrat strategy

May 30, 2019 by

Many traders only look for high probability trades without making sure that there is also a high expectancy outcome.

A great example is so-called Russian roulette. Load a six capacity revolver with five bullets leaving one chamber empty. Spin the revolver mechanism and put the gun to your head. Pull the trigger. The player has an 83% chance of not killing him or herself. High probability, 83% versus 13%, but the 13% is a total loss. Not a few ticks or pennies, but a total loss with no possibility of recovery, ever!

Expectancy knows that regardless of the probability, there is a high level of payout that outweighs the losses.

The successful trader realizes that a system of small probability can be very successful if the average trade has a very high payout for wins versus little loss if the trade doesn’t work out. The best strategy would have a high probability AND a high expectancy.

For example, if one flips a coin a few hundred times and receives $300 each time the coin shows ‘heads’ and loses $100 each time the coin shows ‘tails’, the normal distribution of approximately 50% would earn the coin flipper a high expected return. The coin flipper would have high expected return with anything better than a 25% heads versus tails distribution.

An example of a high probability, high expectancy swing trader strategy is derived from an article in Seeking Alpha, December 23, 2016, “The 10 Best Dividend Aristocrats for 2017 And Beyond”. The piece refers to 10 stocks from a wide range of industries which have increased their dividends for at least 25 consecutive years. “Market Watch” reported on September 9, 2016, that Dividend Aristocrats stocks almost doubled the returns of the S&P stocks in 2016. Many other studies of dividend aristocrats show similar results over much longer time periods.

Below are the 10 Dividend Aristocrats mentioned in the Seeking Alpha article. Once again, the relative momentum is color coded to represent the issues that are also color coded.

It is expected that performance will be better if one were to chose only the issues that are exhibiting only positive(above the zero line, purple) momentum.

Higher probability with a higher expected outcome.

VFC=VFC Corp, ABT=Abbott Labs, JNJ=Johnson & Johnson, CAH=Cardinal Health, ABBV=AbbVie.

 

GWW=Grainger , MDT=Metronic, WMT=Walmart, BDX=Becton Dickinson, HRL=Hormel Foods.

 

Color coding on bottom chart refers to the color coding of the securities. Yellow=Yellow, etc.

Prices as of the close May 29, 2019

 

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