The Nobel Prize

Many of you commented directly on this when it was posted yesterday in the comments section. The start of an editorial by Nobel Lauriate  Peter Diamond.

“LAST October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination.”

THIS IS WHY YOU NEVER VOTE REPUBLICAN.

Read the full NYT editorial here - LINK

Popeye

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KISS & Stocks

(Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING!

DOUBLE CHECK ALL DATA, I MAKE MORE THAN GRAMMAR MISTAKES

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Index Percentage Volume
Dow -0.50% Up
NASDQ -1.11% Down
S&P 500 -1.08% Up
Russell 2000 -1.59% -

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Technicals, Fundamentals & Analysis

  • Repeat – If the Fed waits months to offer more liquidity then CAUTIOUSLY BEARISH should be the outlook.
  • Yesterdays fall was in below average volume. Check out the chart of the S&P on right side of blog. You will notice (the green line) a steady decrease in volume. High Frequency Traders dominate and the light volume is very reminiscent of the light volume melt ups we had all spring. Perhaps light volume meltdown are in store for the summer = Bearish
  • The McClellan Oscillator chart is at -57.79 just 2 points shy of oversold – expect a rebound at least in the AM. However , before this is all over and the Fed caves in to more liquidity expect the MO to reach numbers like -100. The MO chart, just like major US indexes is a series of lower highs and lows.
  • Last night CNBC’s  Jim Cramer went bearish on stocks. One reason he used was US politicians wrangling over debt crisis. (Thanks to Jim J for his comments on this.)

  • Reading The Tea Leaves - Repeat Everything that was said yesterday.  We are in a chart pattern of lower lows and highs (see any major index charts on right side of bog) with liquidity being yanked out from under us on June 30th. The odds continue to increase that bears will rule this summer.

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How To Protect Your Money

In a Bear Market

  • You can be in cash, but that will return almost nothing
  • You can be in bonds – treasuries under 3% for 10 years
  • Your home value are going down so real estate isn’t great
  • You can be in stocks and watch them sink or perhaps grow. But that’s a guess.

Yuck – Not very palatable

A Hedge for Dividend Stocks

Let’s assume we do have a bear market.  Here’s the hedge I am using for dividend stocks. Over the past months I’ve listed a group of dividend stocks that have a second stream of income between 4% & 19%. Let’s say you’ll make an average of 7.5% on these high dividend stocks this year – Not bad if we remain in a bear market.

Here’s what to do in a bear market to preserve you capital when the prices of the dividend stocks decrease. Remember last year after QE #1 ended- we dropped over 15% on the S&P and we could do the same or worse as QE #2 ends. There are two (of many) hedges that Investors411 is recommending to cushion losses in price while you still get the dividend.

  1. TZAThis ETF is 3 times short the small cap index. The plus on TZA  is  it gives you the most volatility for the least price. Its not 1 or 2 times short small cap stocks, but 3 times short the most volatile major index – small cap stocks. The minus is it gives the most volatility for the least price. Example – yesterday the S&P was down 1.08%, but the TZA was up 4.79%
  2. SDS - This ETF is two times short the S&P 500. The plus is it has more stability (less volatility). It is only 2 times short a more stabile S&P 500. The minus is your going to have to spend more dollars to compensate for losses Example yesterday S&P was down 1.08 and and SDS was up 2.15%

One was to calculate a more accurate hedge is to total the price losses of all your dividend stocks yesterday. Then choose some sort of balance ratio between that total and TZA or SDS

Example – Let’s say your total loss of all the shares of dividend producing stocks you own was 0.50% yesterday. Lets say the total  you have invested in dividend stocks was 100 k (I’m using round figures so its easy) Therefore you lost – 100k time o.5% = $ -500.

  • TZA – Is at almost $40 right now and went up almost 5% (4.79%). 100 shares of TZA at $40 gaining @5% = @$+250. 200 shares of TZA or $8,000 = $+500 and that would protected @almostall of your 100 k of dividend stocks yesterday
  • SDS - Is at @ $22 right now and it went up over 2% (2.15%) yesterday. 100 shares at $22 gaining @ 2% = +$44. 1100 shares of SDS or @ $22,000 = @+500 and that would protected almost all of your dividend stocks yesterday.

CAUTIONThese two choices are going to move in the opposite direction of dividend stocks if we have a major move of another 10% down. But the ratios presented are NOT going to remain as balanced as they are above. They will fluctuate.

Perhaps the best way to go is to protect @ 1/2 your dividend stocks immediately and wait for a rally then protect more. Use both SDS & TZA or even another short ETF. There are many many possibilities.  When to sell tomorrow.

JS & The Critic

If you follow the comments section of the blog both JS & The Critic have used similar methods of having a hedge or buying insurance to protect their dividend stocks in a down market. They use a more conservative SDS (2 times the S&P) Both are simply protect the price of their original investment in what appears to be a bearish market ahead.  I do not know how much of their principle they are protecting- 100% on down. LINK here and scroll down for their comments at bottom

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Paul’s Corner

BOLLINGER BANDS

Today a brief look at the Bollinger Band and how it can be used to monitor your stock and provide entry and exit signals.  For your review, the Bollinger Band Basics PDF:

LINK

After a quick review of Bollinger Band Basics here are Your Stock List members with comments with respect to the Bollinger Band.

  • ADTN basing after down trend
  • ALTR basing
  • ABC basing at bottom of band, 3 green candles looking  to turn up
  • BIDI In downtrend, fell back from middle band, not buyable
  • BEXP downtrend, failed rally, at bottom band, not buyable
  • CPHD basing after uptrend, excellent chart
  • IMAX uptrend, great tight chart
  • JNPR broken stock after downtrend, NOT buyable!
  • KSU in uptrend, loose chart
  • LYB in downtrend after nice uptrend. Peaked the day it was introduced to YSL!
  • POT rotten wide chart, in downtrend, sitting on middle band as support. Maybe a turn here.
  • PCLN starting downtrend after a nice run.
  • RNOW basing after good tight chart run, watch!
  • RVBD nice short uptrend after basing, broke down through middle band Monday, not buyable at the moment.
  • SAP What does this chart look like to you?
  • SKWS Look out below!
  • SPRD in downtrend, dropped below lower Bollinger band Monday, NOT buyable!

Ok a little different way to evaluate Your Stock List, your thoughts to using the Bollinger Bands?

So it’s Tuesday morning what’s the market going to do today? Let’s load up Quote Tracker………here we go folks another day of fun!

All of these observations made from the charts dated Monday June 6, when the market opens this morning at 9:30 EDT all bets are off! Remember, you are responsible for your investment decisions, and I am not.  Please do your diligence, and please take ownership for your actions.

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Positions

Below – Investors411  hypothetical portfolio that should outperform the S&P 500.

SLV/AGQ (very roughly 2x silver) Sold 1/2 for +3% profit. Have a sell order in on balance for 3% loss. (see Friday’s comments section of blog.)

REMX - (Rare Earth metals) Investors has a 1/2 position in this ETF

NLY - Annaly Capital Mgt. Ultra high dividend stock.

Plan to buy TZA in rally to protect above long term positions. 1/2 the usual amount. If markets continue to fall will add more high dividend stocks and TZA or SDS.

Disclosure - I own SLV, NLY, REMX, & IMAX (the later should have been in  Investors portfolio – May add it today.)

Thanks for all the praise on calling the market turning South. But its still premature until we hit at least a 10% correction.

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Longer Term Outlook

NEUTRAL/CAUTIOUSLY BEARISH

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING


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