Broader Market Review
Price is right on track as projected in early November and we are now getting the shallow consolidation/pullback that I said was likely at this new higher level. I have made a slight adjustment to the model with the January dip extended out to early February, however, I will continue to monitor and update as additional data develops including the potential ramping of the Middle East military situation. Longer term, price is still aligned with the higher linear degree expansion channel from the low in late 2018. Absent any serious disruptive factors the catalyst for the expansion will continue to be historic cycle patterns.
SPDR Dow Jones Industrial Average ETF (DIA)
SPDR’s S&P 500 Trust Series ETF (SPY)
Invesco QQQTrust Ser 1 (QQQ)
iShares Russell 2000 Index Fund ETF (IWM)
Financial Sector
Speaking of historic cycle patterns, it’s easy to see the cycle disruption that occurred in the financial sector during the 2008 financial crisis. Historically, the financial sector mirrors the broader market, however, during the later half of 2008 the financial sector separated from the broader market and channeled much deeper resetting at a lower level than it should have. Look at this chart to see what XLF should have done.
SPDR’s Select Sector Financial ETF (XLF)..what it should have done
Once the Federal Reserve started fueling the recovery (bailing out their buddies) the financial sector and broader market realigned in early 2009 which continues to this day. But that’s only part of the story.
The difference is that the broader market surpassed its 2007 high in 2012 and the financial sector is just now back to that level, seven years later. Think about that. They are seven years behind the broader market. They have not been expanding from the low in 2009. They have been recovering. They are now, eleven years later, finally back to their old 2007 high and finally on the verge of crossing over. Now is when the expansion should begin and I expect it to be robust.
Banks and money centers have become lean, mean, automated cash machines ready to rock with both economic expansion and higher interest rates. The ole double whammy technology fueled boosters are fired up Scotty.
If you want to own individual financial sector stocks there are many to choose from. I have my favorites listed here. You can find them in my recent posts plus there are a few under “Entries” (Open Trades) on the Trade Alert page. Or, you can own the Financial Sector ETF to get broader exposure if you want to avoid the risks of owning just a few names. Here is a good link for more information about XLF, a Financial Sector ETF. The link will show you the individual stocks in the XLF ETF in addition to other valuable information.
This sector is becoming more and more like the technology sector, just still dressed in a stuffy shirt. On a risk adjusted basis I love the financial sector.
SPDR’s Select Sector Financial ETF (XLF) weekly..2008-2021
Fundamental Analysis, Technical Analysis and Weird Shaped Lamps
There are a zillion constantly changing data points available to consider when trying to find correlations to determine price movement. They generally fall under two separate and distinct categories of research; fundamental analysis and technical analysis. I have, what I would consider, a decent understanding of fundamental analysis and probably a “better than most” understanding of technical analysis. I don’t think I’m any smarter than anyone else, I just think I learned differently; I am mostly self taught.
Put me in a book lined room with lots of weird shaped colorful lamps, turn up the music, plug in a few old fashioned Christmas lights and I am in heaven with my charting screens. Or, put me anywhere with my charts and I’ll be happy.
The point I’m trying to make is I know what data points everyone else is looking at but they don’t know what data points I’m looking at. I know what they know. They don’t know what I know. They don’t understand the non linear price cycles and fractal pattern repetition. I didn’t understand it for a long time either. It just takes time and practice, like anything else.
Since I am mostly self taught from early on it became easy for me to see the weak spots in traditional technical analysis as I wasn’t steeped in the lore of what someone else thought. Later, when I did hear others teach I knew immediately when they were wrong. I knew they were just repeating what someone taught them. I still see the mistakes everyday. I know when they are wrong and I know why they are wrong. I think I just got lucky by putting in the time, crossing paths with a wizard or two along the way and really loving what I do.
So, there is fundamental analysis, technical analysis and weird shaped lamps. I’m not sure what to call what I do. It’s definitely technical analysis but not like any that’s taught in schools or found in any books. It is, by far, the most effective analytics I have ever used. It allows for all of the ingredients to understand trading better than the vast majority of industry professionals. I know that’s a big statement but I believe it to be true. It allows for managing risk and knowing what price should do. This does not mean it is always easy emotionally to enter or exit a trade. The analytics allow a model to be built that is really the catalyst for future price movement. And when the model is disrupted you know something is wrong fundamentally. To me, it’s priceless.
Closing Thoughts
I had planned on posting my 2019 performance information today but my soon to be 96 year old Mom fell in the middle of the night a week ago. Urgent care, Dr.’s appointments and other related events are scrambling for my time. By the way, 2019 performance was excellent and Mom is getting better.
While I don’t offer personal investment advice because I have no idea what your individual situation is I hope I am helping you. I think it’s just ridiculous that financial advisors still charge 1% of your account balance to house your money in a buy and hold scheme. Really!?..$40,000.00 per year for advice on a $4,000,000.00 account. Wrong. Flat out wrong. Even at $500.00 per hour that is 80 hours per year. There is no way they are spending that much time on a $4,000,000.00 account. No way! Why can’t they just charge an hourly fee for their services like other professionals? I know they can offer advice but not forty grand worth! This too shall pass. I suspect, over the course of the next decade, fees will drop faster than a biotech company the day after you buy it.
One more chart..Visa (V)..another financial powerhouse.
Visa (V)
All the best for a wonderful 2020,
Don