The Week Ahead: Federal Reserve, producer prices

The Federal Open Market Committee meets beginning Wednesday to make a another decision about interest rates. The meeting concludes on Thursday at 2 p.m. New York time with an announcement of the decision. No news conference is scheduled.

The Fed raised rates once each in 2015 and 2016, three times in 2017 and so far, three times in 2018.

Today’s Book

Can American Capitalism Survive?

Why Greed Is Not Good, Opportunity Is Not Equal, and Fairness Won’t Make Us Poor

by Steven Pearlstein

Washington Post business columnist Steven Pearlstein takes on what I consider to be the challenge of our age: Can capitalism provide a better life for us all?

Now more than ever people are questioning the vast theory and system that underlies our lives, amid increasing inequality and the resulting political turmoil.

Pealstein gives a view of what has happened, why it has happened, and what specifically must be done to fix it. and, in the process, preserve the dynamic system that has created a world of increasing wealth and freedom.

More about the book

There has not yet been a November increase since the present series began, so I won’t read much into it if the Fed decides not to raise at this meeting. The final meeting of the year, Dec. 18-19, will have a news conference by the Federal Reserve chair and release of new forecasts, and that would be the most likely time to announce a fourth increase for the year.

A decision to raise in November, on the other hand, would be a very big deal, with a market response and without a doubt a very loud response from the White House.

One report on the state of prices is due out during the week. The producer price index (final demand) will be published on Friday at 8:30 a.m.

Fed Vice Chairman for Supervision Randal Quarles will speak on future financial regulation at the Brookings Institution in Washington on Friday at 9:05 a.m. The event will be steamed live here.

The week ends with a three-day weekend marking the Veterans Day holiday in the United Stats on Monday, Nov. 12.

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Live: Friday, Nov. 2, 2018

3:40 p.m. New York time

That wraps of trading for what proved to be a busy week. I’ll post my weekly discussion of economic reporting, The Week Ahead, on Saturday.

11:15 a.m. New York time

I have updated the STZ analysis with results.

Today’s Book

Market Timing with Moving Averages

The Anatomy and Performance of Trading Rules

by Valeriy Zakamulin

Late Thursday evening I posted to Private Trader an essay on a significant moving average signal on the S&P 500. MAs (as we call them in the biz) are a fascinating tool, with a very long history dating well back into the era of manual calculation.

Zakamulin is a professor of finance at the University of Agder School of Business and Law, located in Norway. In his deep dive into the world of moving averages, he provides a foundation of rule-based market timing. 

More about the book

10 a.m. New York time

I have exited STZ. At this time I anticipate no other trades today.

9:50 a.m. New York time

I intend to exit STZ today to avoid an ex-dividend on Monday, which increases the chance of assignment.

The one prospective trade coinciding with earnings PCG. With IV rank in the 3rd quintile, it’s not a serious choice, and I am laying it aside.

I posted an essay last night about a bear signal from a very slow-moving indicator that I’ve written about before: The I Hate Stocks trading indicator. It can be read here.

The status of my current options positions.

sym option debit share price beyond profit zone curr % max profit net prft/shr $ option days left
EWZ 1.72 41.81 high (100.0) (0.86) 14
GILD 5.42 70.59 12.3 0.76 49
HON 5.99 145.35 low 5.5 0.35 14
JNJ 6.35 140.99 high (13.4) (0.75) 14
MCD 7.48 174.51 high (20.6) (1.28) 14
MSFT 7.44 107.13 13.5 1.16 49
PM 3.44 87.97 (0.3) (0.01) 14
STZ 8.63 275.10 high (2.7) (0.23) 14
SPY 4.68 201.62 (10.9) (0.46) 49
UPS 8.27 106.84 (0.9) (0.07) 49
WBA 4.67 79.92 high (31.2) (1.11) 14

And of my shares positions.

sym share price net result % net profit $ days held
AAPL 213.33 -4.7% (10.63) 49
CHK 3.64 -9.0% (0.36) 49
FXI 41.74 1.3% 0.53 49
SPXU 37.23 -8.2% (3.33) 171
TSLA 345.72 13.4% 40.73 32

By Tim Bovee, Portland, Oregon, Nov. 2, 2018

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A Major Bear Market Signal

In 2013, I published an essay called “The I Hate Stocks Trading Plan“. It was aimed at my many friends who are buy-and-hold traders. Whatever the market does, they ride it up, they ride it down, they ride it back up, and they ride it back down again.

(Click on the title above to read it, or click here.)

That’s a lot of potential profit being chewed up by the bear markets.

The “I Hate Stocks” plan, as I presented it, is extremely conservative. It relies on the 12-month moving average — that’s right, “month”. The chart under this plan is checked once a month, on the last day. If it close above the 12-month moving average, then it is in a bull phase. If below, then it is in a bear phase.

It doesn’t happen often, but when it does, traders with skin in the game do well to take notice.

By this measure, the S&P 500 and it’s top index fund, SPY, entered signaled a bear market at the end of October. Here’s what it looks like on a five-year chart, where each bar covers a month. The yellow line is the 12-month simple moving average (“simple” means, no weighting in favor of the newer readings).


The 12-month moving average method won’t have you jumping in and out like a demented jackrabbit. It will, like all signals, occasionally give false alarms. But generally, a signal means that we’re in for a change in trend that will be with us for awhile — months, and maybe years.

The last time the S&P 500 gave such a bear signal was in August 2015. It moved back into a bull signal in March 2016. In both cases, the signal was read on the last day of the month.

That was a relatively short correction, a bit more than half a year. There’s no guarantee that they’ll all be that short.

The bear signal of late 2008 kicked off a bear market that lasted until mid-2009, and the market took years to really get going. It didn’t return to its prior levels until 2013, five years later.

Here’s a 20-year monthly chart of the S&P 500, again with monthly bars.


Note that under this plan, the trader won’t avoid all of the decline, but will escape most of it. And the trader will won’t catch all of rise, but will profit from most of it. Like all signals, the 12-month moving average is a lagging indicator. But even with the lag, used properly it increases profits.

Full disclosure: I don’t use the “I Hate Stocks Trading Plan” in my own trading. Truth is, I love stocks, especially in the form of their options, a derivative. Using stock options, I can make money in a downtrending market just as handily as I can make it in an uptrending market. And I trade often, almost every week, sometimes almost every day.

But when there’s a signal of this magnitude on the slow-moving 12-month moving average, I take notice. And the signal tells me to be extra-bearish and extra-cautious in my trading.

By Tim Bovee, Portland, Oregon, Nov. 1, 2018

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SPY Analysis


I have entered a short bear vertical spread on SPY, using options that trade for the last time 50 days hence, on Dec. 21. The premium is a $4.22 credit and the stock at the time of entry was priced at $273.a8.

I made the decision to enter the trade in my account based on Elliott wave analysis. My count shows that the requirements have been met for a wave 2 upward correction at the Minute degree, and I anticipate the next move will be a wave 3 decline.

The profit zone for this position is $270.78 and below.

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Live: Thursday, Nov. 1, 2018

3:30 p.m. New York time

I have updated the analyses for today’s four exits with results. They are AMGN, C, IBM and VNQI.

2:05 p.m. New York time

I’m passing on an SBUX earnings play without analysis. My structure would be an iron fly, and the at-the-money options strike prices are overly far from the stock price for my taste.

1:45 p.m. New York time

I have exited a position in AMGN to free up funds and entered a new position on SPY.

10:50 a.m. New York time

My exit orders on C, IBM and VNQI have been filled, each for a loss.

It looks to me as though SPY has completed the minimum requirement to consider Elliott wave 2 at the Minute degree {+1} to be complete, and that means it’s time to hop back in with a fresh position in order to catch wave 3 down. I shall enter a position today.

The SPY chart covers 30 days with 30-minute bars.


10:20 a.m. New York time

This is a day to clean holdings.

I have placed two exit orders, C because the stock goes ex-dividend on Friday and I don’t want to be assigned, which incurs fees, and IBM because it is significantly out of the money on the downside, and I would just as soon take the loss and free the money for other trades.

And I am exiting VNQI, a shares position, to free up cash.

I shall continue looking closely at SPY for a re-entry point.


Today’s Book

The Behavioral Investor

by Daniel Crosby

Crosby, whose latest book ranks at the top of the Investment and Business sales chart, considers the role of psychology in what we traders do, placing and managing investments. 

The Behavioral Investor takes on a tour of human nature and then drills down to the specifics of how to construct a portfolio.

“Wealth, truly considered,” says the book description, “has at least as much to do with psychological as financial wellbeing.” It’s a book with ideas worth considering as we continue to improve our trading skills.

More about the book

My best earnings prospect for the day is SBUX, with an implied volatility rank in the top percentile. I shall consider it for a trade, if I can find the cash. My trading account is almost entirely committed.

The other earnings possibilities for the day are:

1st quintile (81-100): AAPL, NWL, STX, WU and X

2nd quintile (61-80): BABA, CVX, DUK and MET

4th quintile (21-40): TTPH

A snapshot of my current options positions.

sym option debit share price beyond profit zone curr % max profit net prft/shr $ option days left
AMGN 8.44 192.51 13.7 1.34 15
C 3.59 65.79 low (4.1) (0.14) 15
EWZ 1.28 40.66 (48.8) (0.42) 15
GILD 5.52 69.07 10.7 0.66 50
HON 6.28 144.68 low 0.9 0.06 15
IBM 10.00 115.53 low (47.3) (3.21) 15
JNJ 6.04 140.85 high (7.9) (0.44) 15
MCD 7.71 176.00 high (24.4) (1.51) 15
MSFT 7.68 106.25 10.7 0.92 50
PM 3.64 88.66 high (6.1) (0.21) 15
STZ 9.48 199.60 low (12.9) (1.08) 15
UPS 8.82 106.89 (7.6) (0.62) 50
WBA 4.71 80.18 high (32.3) (1.15) 15

And my shares positions.

sym share price net result % net profit $ days held
AAPL 218.24 -2.6% (5.72) 48
CHK 3.54 -11.5% (0.46) 48
FXI 40.27 -2.3% (0.94) 48
SPXU 38.66 -4.7% (1.90) 170
TSLA 342.48 12.3% 37.49 31
VNQI 53.86 -5.2% (2.95) 49

By Tim Bovee, Portland, Oregon, Nov. 1, 2018

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