Weekend Strategy Review May 24, 2015
Posted by OMS at May 24th, 2015
I was going through a few of my old emails this morning trying to clean up my inbox. I received a warning from my internet provider yesterday that I had was storing too many emails and if I didn’t do something soon, they would turn me off.
So as I cleaned out my inbox, I read a few of the emails and started to smile. All of a sudden, I realized that a lot of my students were starting to get it.
All the stuff I have been talking about over the years was starting to sink in.
They were following the ‘Sticks in the Sand’ for energy, getting in when Dig started to appear in mid-March, and staying in until late April. And when DUG replaced DIG in late April, they started to move out of energy.
Same for my Bond Strategy. My students were in Bond for most of last year when TMF and TLT were making their big runs, and then got out of Bonds and into TBT, the inverse Bond Fund whenever it appeared on the List. And since late April, most of my students are now pretty happy with a nice 8- 10 percent gain…just by trading the Bond ETFs.
The strategy is pretty simple. No indicators, no patterns, no nothing. All they do is watch the ‘Sticks in the Sand’. When the positive Bond ETF (TLT and TMF) are on the Dean’s List, they buy one of them. It appears that most of my students buy TMF because it costs a few bucks less. Doesn’t matter because at the end of the day they both increase about the same percentage when bonds go up.
Then as long as TMF and TLT are on the List, they stay in Bonds. When TMF and TBT drop off the List and are replaced by TBT, they sell the positive bond ETFs and buy TBT, the inverse bond ETF. Simple.
Now, don’t hold me to it because I haven’t done the research. It’s a Herculean task to run the Dean’s List and look for the times when TBT actually replaces TMF and I don’t want to go back and do it. But a quick look shows that this simple Bond Trading Strategy has produced a profit of over 50 percent for the past few years.
And as you know, discovering this strategy was one of my finest moments. I talk about it in every Class repeating the story about what happened in August 2011, when TMF was at the very top of the Dean’s List on the day when U.S. Treasury Bonds were being downgraded from AAA to AA status. All day long, the commentators on CNBC were telling you to Sell Bonds. But the Dean was saying otherwise. As things turned out, the folks on CNBC were wrong; the Dean was right. TMF went from 40 to 80 in two months. It doubled! Money from Europe, where most bonds were being downgraded to junk status, poured into American Treasuries. The ‘experts’ on CNBC newer saw it coming. The Dean did.
Anyhow, why am I reminding you about this today? Hmmm? Well, it’s because the exact same thing could happen again. There’s a LOT going on in Europe now that could impact American Bonds. And the financial news media is distracting you about it. Heck, you can’t turn on a financial news channel without someone talking about Janet Yellen and the Fed and what they’re planning to do about interest rates. It’s like they matter. In truth, they don’t matter!!! The Fed doesn’t control interest rates. The market does. All the Fed controls is the short-term lending rates to the member banks. The short-term rates impact the housing market to a degree, but when nobody is buying houses, who cares?
So stop worrying about the Fed. Concentrate on the larger issue.
Here’s the deal: If equity prices start to fall, money will start to flow out of stocks and into bonds. Money won’t go into cash or be put under the mattress. It will be put into Bonds. This will push bond prices up. And IF turmoil in Greece causes Europeans to become concerned about a possible Greek default, which will also focus attention on bonds in Spain and Italy, a lot of that money will likely find its way into U.S. Treasuries.
So with TBT still high on the Dean’s List, we need to be concerned.
Today I’m posting a longer-term chart of TMF, one of the positive Bond ETFs. What I want you to get from the chart is the pattern that has occurred for the past few months. It is NOT a trending pattern. It is a corrective a-b-c pattern. The longer-term pattern in Bonds is UP…not Down. So even though TBT is on the List now, it’s only because TMF is correcting. And it’s in the ‘c’ wave …the final wave of that corrective pattern. So we need to be careful with TBT now.
On the other hand, when I look at TMF, the Money Flow indicator is still negative, but it is quietly starting to rise. If it crosses its moving average, it’s going to put positive pressure on the price. The Dean will see this. And when the momentum starts to kick in, TBT will fall off the List and both TMF and TBT will reappear. Watch for it to happen. That’s all I’m gonna say about bonds.
BTW, the Dow fell 54 points on Friday. It was down 41 points for the week. But in case you didn’t notice already, Friday’s down move was enough to turn The Tide negative (see the attached chart).
So now with a negative Tide, we can start to look for inverse ETFs to appear on the Dean’s List and shorts to appear on the Dean’s List.
Remember what we do for equities Our primary strategy is once the Tide changes (in this case negative) we start to buy inverse ETFs as they start to appear on the Dean’s List.
Then once the Coaches (our Money Flow indicators) start to turn negative, we start looking for shorts on the Honor Roll. Right now there aren’t any. It’s still very early.
So we wait.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for 05-26-2015 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments, Weekend Strategy Review