Daily Investment Interpretations
November 19, 2010
The markets ended up a little (but not a lot) today.
The NASDAQ Composite added 3.72
to end the day at 2,518.12 The Dow
to close at 11,203.55,
and the S&P 500 rose 3.04
to end at 1,199.73. Oil rose to $82.06 a barrel,
and Gold was unchanged at $1,354. The VIX dropped 0.74
Argh! At the moment, it looks as though Tuesday's market plunge may have been the culmination of a short, slight, sharp correction, although whether this is true remains to be seen: Technical Talk: Bouncing Back To Resistance. Looking at the charts below suggests that there could be at least a retest of Tuesday's low. We won't know until the middle of next week. In the meantime, if selling was a bad call, it's one that was ineluctably dictated by the fact that the emerging-market ETFs: EEM, FXI, EWY, and EWZ all broke below their 50-day moving averages. (EWZ penetrated its 75-day moving average.) And as if this weren't enough, my technical advisory service issued "sell" signals for both emerging markets and S&P 500 ETFs. My investment advisory service observes that not all their signals will be correct, but that they are correct maybe ¾ths of the time. Buying and selling has to be performed on some kind of semi-mechanical basis that minimizes the effects of greed and fear. Simply using 50-day moving averages to decide whether to buy or sell may be overly simplistic, but my investment advisory service has additional criteria.
I also sold two smallish international mutual funds on Wednesday that had slightly surpassed their 2007 peak values. I figured that it was time to lock in my gains.
It's embarrassing and frustrating to sell into a falling market like Tuesday's, but rules like selling when an ETF drops below its 50-day moving average can prevent catastrophic losses.
So what do we do now? What happens if you sold when I said "sell"? I plan to wait for a good opening. We haven't lost anything if we can buy back what we sold at the price for which we sold it. (Cash is never out of fashion.) After all, these ETFs move up and down. Looking at the multi-year chart patterns, it appears likely that we'll have a chance to buy back whatever we sold on Tuesday at or near the prices at which we sold on Tuesday.
One of my basic game plans consists of buying two-year calls on emerging market index funds, and then waiting for these countries to grow over time, using leverage to amplify the gains. I think that it might be reasonable to expect 20%-to-25%-a-year gains this way. (But note that I haven't tried it yet.)
Another strategy is to follow the recommendations of the Cabot China and Emerging Markets Reports to buy and sell up to 10 emerging market stocks at a time. The "buy" and "sell" signals are issued by email by CCEMR. The most successful stock in CCEMR's stable is Baidu. It was recommended on 7/17/2009 at a price of $32 a share, and is now at $108. A second stock was recommended in July, 2010, at $26 a share and is now $36 a share. There have been losers, too, but by and large, this portfolio appears to be gaining. And these gains are being made in a Chinese market environment that is pretty flat, given the Chinese government's moves to rein in an overheated economy.
Some of the other standby approached that I've tucked away in a drawer haven't survived the Great Recession. The Prudent Speculator returned something like 19.6% per year from its inception in 1980 through October, 2007. It operates a mutual fund with the symbol VALUX. Unfortunately, since 2007, VALUX isn't doing any better than the S&P500. The same can be said of the No-Load Fund X newsletter. It had returned about 17% a year since its founding in... 1975? It also has mutual funds such as FUNDX, and it also is barely tracking the S&P 500. Of course, these funds and these newsletters may regain their preeminence over the next few years, but so far, they haven't.
I have other 25%-per-year candidates up my sleeve that I briefly explored in 2007, but I was nearly doubling my money from July to October of 2007, and nearly tripling my money from August to October of 2007, and I couldn't afford to take time to explore 25%-a-year strategies. And then the Great Recession and the threat of another Great Depression put the quietus on investing strategies for a while. I'll try to check to see how real these 25%-per-year schemes really are. (If they're as good as is claimed, why isn't everyone using them?)
Weekly fund flows stumble, says fund-tracker EPFR What this news release says is very important. The article states that year-to-date inflows into all emerging markets funds reached $81.9 billion in the week ended November 17th, versus $83.3 billion for all of last year. Meanwhile, EEM rose form a low of 20 on March 6th, 2009, to a high of 49 on September 23rd, 2009, over a 6½-month period. It didn't exceed that peak until July 14th, 2010. From there, it rose another 9 points to a new peak of 58 on November 4th, 2010. So money has continued to flow in at a steady rate, but it hasn't boosted the emerging markets that much. However, EEM reached $75 a share in October, 2007, so the fund is still below its 2007 high-water-mark in spite of the fact that emerging-world economies have been growing relatively rapidly. So it may still have room to romp.
More attention for emerging markets: Bernanke
Poking holes in the pro-QE2 message
Bernanke Defends Fed's QE II Plans