Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

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IBM Technical Outlook October 2014

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In this week’s Mullooly Asset Management video, Tom takes a look at the point and figure chart of IBM. IBM reported subpar earnings this morning (October 20, 2014) and also reported paying one of their competitors to take a division off their hands. Not great news. IBM is a large component of the Dow Jones Industrial Average, and its negative earnings news has put a damper on the index so far today (as of 1 pm).

As Tom mentions in the video, we get all of our point and figure charts from Dorsey Wright and Associates. If you’re interested in learning about point and figure we highly recommend you visit their website: http://www.dorseywright.com

Watch the video for an in-depth analysis from Tom. The point to take away is that before this morning’s earnings new, IBM was already in a negative trend. When stocks are in negative trends, bad things tend to happen. In addition to being in a negative trend, IBM’s chart is a sell signal. It’s displayed poor peer and market relative strength as well.

Point and figure charts help us to stack the odds in our favor when we invest. We typically look for investments in positive trends, on buy signals, that display peer and market relative strength. Is this a perfect strategy? No, but it helps us stack the odds in our favor.

Market Update: October 15th 2014

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Tom and Brendan normally discuss big picture topics on the Mullooly Asset Management podcast. However, this week they decided that a market update would be best. The current market volatility is what’s on everybody’s mind.

Markets moved lower at the open today. The Dow Jones Industrial Average was down 360 points just a few minutes after markets opened at 9:30. However, not long after that were down 160 points. 200 point upswings do not materialize out of thin air, so some people saw the 360 drop after the open as a buying opportunity.

The S&P 500 is now down 2% for the year. From the last new high we saw on September 19th, we’re almost down 10%. This morning we touched 1838, down from the September high of 2010.

Typically when the US heads into a recession, the S&P 500 gets chopped in half. That’s the type of market move people get scared about when we see volatility like we’ve seen over the last few weeks. So where are we at right now? By “we”, we mean the United States, the markets, and the economy.

Regarding the economy: despite retail sales numbers from this morning, it’s doing just fine (excluding housing). While the numbers haven’t been anything to write home about so far, they have shown definite growth. Third quarter earnings were expected to be up around 4.6%. The actual number that we’ve seen so far is up over 9%. More and more companies are raising their earnings forecast.

We’ve definitely seen our short term charts get to washed out levels. They haven’t turned back up. Yet. We’ve seen some real changes on some charts and indicators, and have been taking action accordingly. Where we’ve seen real breakdowns on the charts, we have acted and will continue to act.

Don’t forget that this week is option expiration week. Nobody seems to be talking about this, but option expiration week is almost always the most volatile week of the month. Couple that with the current market conditions, and you get something that looks like what we’ve seen so far this week. We’ve seen volatility and that’s caused some real fear and sweat in the market.

Make sure to listen to to this week’s Mullooly Asset Management podcast to hear more from Tom and Brendan.

“Buy and Hold” Blindly is Not a Game Plan

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A fantastic article written by Ben Carlson titled, “Some Stocks Don’t Come Back” is the inspiration for today’s Mullooly Asset Management video. In his article, Ben tells us, “the problem with ‘buy when there’s blood in the streets’ is that sometimes individual stocks don’t comes back from the dead”. Ben points to stats shared by Michael Batnick to back up this assertion.

Since 1980, 40% of all Russell 3000 stocks have undergone a drop of 70+% from peak value with minimal recovery. Examples of these stocks include AIG, Citigroup, Bank of America, and Fannie Mae.

What do we take away from this? We’re long term investors here at Mullooly Asset, but this shows us that “buy and hold” blindly is NOT a game plan. Some stocks simply do NOT come back. That’s why we watch for technical developments, like support line breaks, on our point and figure charts. They allow us to take the emotion out of investing.

Sources:

Some Stocks Don’t Come Back
The Risk of Concentrated Portfolios

Interest Rates, Washington, The Market: Your Cheat Sheet

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I’ve whipped up a cheat sheet for you regarding Interest Rates, Washington, The Market.
Print them out and bring them to your next party!

Interest Rates:

  1. Janet Yellen has given speeches about NOT wanting to raise rates — as far back as 2009, when she was a Fed Governor in San Francisco. Look it up, Yellen is afraid of a re-run of 1937. Yes, someday, rates WILL rise. But rates may rise a lot SLOWER than CNBC will lead you to believe.
  2. As I’ve written before, Bernanke and Yellen have been the MOST transparent Fed Chairs, ever. Just listen to what they say — don’t let Bloomberg, CNBC, or anyone else spin it for you. They are the dope!
  3. Europe is in a RECESSION, and openly worry about deflation. The European Central Bank (ECB) is chucking around the idea of Quantitative Easing. Only five YEARS after we did it! All that will help keep rates low around the globe for a long time.
  4. Also, the Euro is weak, the dollar strong. It’s a seesaw: when the dollar is UP, the Euro is DOWN. A strong dollar is really bad for Gold — and anything else commodity related.

Washington:

  1. The president has instructed the Treasury to change the rules, to stop businesses from seeking lower tax rates overseas. I don’t know if what has been suggested is even legal, but who am I to judge?
  2. When you and I were growing up, playing stickball in the street, and suddenly the other team tried to change the rules, what did we do?
  3. Now, if corporations have to stay in the US and pay more taxes, that will likely slow down the economy. And it will probably slow down job growth. Which will keep pressure on the Fed to keep rates low, even longer. Mmmm, K.

The Market:

  1. Most major indices just made new highs several times over the summer. I know I’ve only been in the business for thirty years, but I cannot recall seeing the stock market fall apart a day, a week, or even a month after making new highs. Just saying.
  2. There is a LOT to like about this market, if everyone would stop micro-managing and wringing their hands. For decades, we’ve prayed and begged for a period of time when interest rates are low, when inflation has vanished and corporate profits are growing. Hellooooooo, here we are.
  3. Our long term charts are showing green lights. Short term indicators are really sloppy. This backdrop tells me when we get pull-backs, they will be good opportunities.
  4. Bonus point: Every time the president has a press conference or makes a speech on TV, the market drops like a rock that day. Guess who is talking later today?

There you have it — a quick and easy cheat sheet for today on Interest Rates, Washington, The Market.