Follow the Corporate Insiders

Posted on July 14, 2012 by

One of my favorite indicators is based on the commitment of traders (COT) data, which I discussed in the article titled "Trade with the Experts."  In that article I stated that using the COT indicator "is almost like trading with inside information - legally."  If the COT indicator is good, then trading with the actual corporate insiders must be even better.

Elevated ratios of corporate insider selling to buying can provide early warnings of market tops.  According to Vickers weekly Insider Report, that ratio is currently more than twice its historical average.

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Posted in COT Analysis, Economic Indicators, Market Commentary, Market Sentiment, Market Timing | Tagged , , , , , | Leave a comment

Global Recession Increasingly Likely

Posted on July 7, 2012 by

Economic releases were mixed in the US last week, but the overall trend is decidedly bearish.  The ISM Index value dropped to 49.7, well below the consensus expectation of 52.5 and almost four points below last month's reading of 53.5.  ISM Index values below 50.0 signify contractions.  This was the lowest reported ISM index value since mid-year 2009.

The ISM Services Index was 52.1, also below both the consensus estimate and last month's reported value.  While the services index remained above 50.0, it typically lags the more responsive ISM Index.  This makes the ISM release of 49.7 even more foreboding. The recent Philadelphia Fed release of -16.6 is consistent with the weak ISM Index data; the manufacturing sector has slowed dramatically.

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Posted in Economic Indicators, Market Commentary, Market Timing, Summary Market Indicator Score | Tagged , , , , , , | 4 Comments

Are You Paying Too Much for Your ETFs?

Posted on July 1, 2012 by

Have you ever had the nagging suspicion that you were paying too much for an exchange traded fund (ETF)?  Your fears were probably justified. This article explains how to find the real-time value of an ETF using a free resource that is frequently overlooked by many traders.

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Posted in Security Selection, Stocks & ETFs | Tagged , , , , , , , | 1 Comment

Market Diverges From Economic Data

Posted on June 25, 2012 by

Economic releases were mixed last week.  Building permits came in stronger than expected, but are still at anemic levels.  Leading indicators were up 0.3% last month, which was also stronger than expected.

Unfortunately, the ECRI weekly leading indicator (WLI) declined again last week and ECRI's WLI is a much more reliable indicator than the government's leading indicator series.  Initial unemployment claims were higher than expectations again and the previous week was also revised higher.  The Philadelphia Fed release was terrible.  It came in at -16.6, much worse than the expectation of -0.2 and well below last month's reading of -5.8.  Historically, readings below -15 were typically followed by recessions.

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Fed Rides to the Rescue – On a Broken-Down Horse

Posted on June 20, 2012 by

The Federal Reserve announced today that they will continue Operation Twist through the end of 2012.  Given the ongoing problems in Europe and the widespread weakness in the global economy, the Fed was widely expected to take substantive action to further stimulate the economy.  Unfortunately, a 6-month extension of Operation Twist (on a smaller scale than the original) was not the elixir the market needed.

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More Weak US Economic Data Last Week

Posted on June 18, 2012 by

The US economic news continued to deteriorate last week, but the market was focused exclusively on the Greek vote and failed to acknowledge the latest economic developments. The following post provides an overview of the major economic releases from last week as well as my current summary market indicator score.

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Take the First Step Toward an Investment Process

Posted on June 15, 2012 by

Most investors do not use an investment process.  Instead, they ask their friends for stock tips, watch CNBC, read a few newsletters (or blogs), and hope for the best.  There is no consistent rationale behind their decision-making process, very little risk management, no concept of position sizing, and a limited chance of long-term success.

To be fair, developing an investment process can be a daunting task. This article will describe the various elements of an investment process and explain how to get started.  You don't need to design the entire investment process at once; you can begin with one simple rule.

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Posted in Fundamental Analysis, In-Depth Article, Market Breadth, Market Commentary, Market Timing, Relative Strength, Risk Management, Seasonal Tools, Security Selection, Stock Screens, SWAMI Charts, Technical Analysis, Zacks | Tagged , , , , , , , , , , | 5 Comments

Spain: More Debt Equals Increased Risk of Default

Posted on June 12, 2012 by

After insisting a week ago that they did not need a bailout, Spain asked for $125 billion to shore up its crumbling banking system. World equity markets initially rallied on the news. Spain's IBEX 35 index was up a remarkable 5% at Monday's open, but eventually gave back all of its gains and finished yesterday's trading session in the red.  US equities were down sharply on the day.

Why were the equity markets initially up so dramatically?  Another loan was not going to solve their fundamental problems.  I was an institutional fixed income portfolio manager for many years and there are some very basic rules for bonds.  The first rule is that more debt means more risk.  When a person, company, country, or any entity already has too much debt, taking on more loans (especially senior to the outstanding debt) increases the probability of default and increases the risk to existing bondholders.

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Posted in Fundamental Analysis, Market Commentary, Market Timing | Tagged , , , | 1 Comment