RS Chart of The Day

January 30, 2015

SPYVSEEM zpsbtaxigi1 RS Chart of The Day

Point and Figure RS Charts are calculated by dividing one security by another and plotting the ratio on a PnF chart.  When the ratio is rising, it is plotted in a column of X’s and reflects the numerator outperforming the denominator.  Likewise, when the relative strength ratio is declining, it is plotted in a column of O’s and reflects the outperformance of the denominator.

Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.  This example is presented for illustrative purposes only and does not represent a past recommendation.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security.  This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein.  We are not soliciting any action based on this document.  It is for the general information of clients of Dorsey, Wright & Associates, LLC (“Dorsey, Wright & Associates”).  This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.  Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice.

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Sector Performance

January 30, 2015

The chart below shows performance of US sectors over the trailing 12, 6, and 1 month(s).  Performance updated through 1/29/15.

sector 01.13.15 Sector Performance

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    Source: iShares

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RS Chart of The Day

January 29, 2015

SPYVSGCC zpswpxxzxqn RS Chart of The Day

Point and Figure RS Charts are calculated by dividing one security by another and plotting the ratio on a PnF chart.  When the ratio is rising, it is plotted in a column of X’s and reflects the numerator outperforming the denominator.  Likewise, when the relative strength ratio is declining, it is plotted in a column of O’s and reflects the outperformance of the denominator.

Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.  This example is presented for illustrative purposes only and does not represent a past recommendation.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security.  This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein.  We are not soliciting any action based on this document.  It is for the general information of clients of Dorsey, Wright & Associates, LLC (“Dorsey, Wright & Associates”).  This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.  Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice.

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What’s Hot…And Not

January 27, 2015

How different investments have done over the past 12 months, 6 months, and month.  As of 1/26/15:

asset class Whats Hot...And Not

Source: Yahoo! Finance.  Performance listed is total returns. 

1PowerShares DB Gold, 2MSCI Emerging Markets Index, 3DJ U.S. Real Estate Index,4S&P Europe 350 Index,5Green Haven Continuous Commodity Index, 6iBoxx High Yield Corporate Bond Fund, 7JP Morgan Emerging Markets Bond Fund, 8PowerShares DB US Dollar Index, 9iBoxx  Investment Grade Corporate Bond Fund,10PowerShares DB Oil, 11Barclays 20+ Year Treasury Bond,12 S&P 500 Index,13 PowerShares QQQ,14 Dow Jones Industrial Average

This example is presented for illustrative purposes only and does not represent a past recommendation.  Past performance is not indicative of future results.

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RS Chart of The Day

January 27, 2015

SPYVSIYR zpsdahsaf66 RS Chart of The Day

 

Point and Figure RS Charts are calculated by dividing one security by another and plotting the ratio on a PnF chart.  When the ratio is rising, it is plotted in a column of X’s and reflects the numerator outperforming the denominator.  Likewise, when the relative strength ratio is declining, it is plotted in a column of O’s and reflects the outperformance of the denominator.

Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.  This example is presented for illustrative purposes only and does not represent a past recommendation.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security.  This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein.  We are not soliciting any action based on this document.  It is for the general information of clients of Dorsey, Wright & Associates, LLC (“Dorsey, Wright & Associates”).  This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.  Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice.

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RS Chart of The Day

January 26, 2015

 

SPYVSAGG zpsu7qygfde RS Chart of The Day

Point and Figure RS Charts are calculated by dividing one security by another and plotting the ratio on a PnF chart.  When the ratio is rising, it is plotted in a column of X’s and reflects the numerator outperforming the denominator.  Likewise, when the relative strength ratio is declining, it is plotted in a column of O’s and reflects the outperformance of the denominator.

Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.  This example is presented for illustrative purposes only and does not represent a past recommendation.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security.  This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein.  We are not soliciting any action based on this document.  It is for the general information of clients of Dorsey, Wright & Associates, LLC (“Dorsey, Wright & Associates”).  This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.  Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice.

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Sector Performance

August 29, 2014

The chart below shows performance of US sectors over the trailing 12, 6, and 1 month(s).  Performance updated through 8/28/2014.

sector 08.29.14 Sector Performance

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    Source: iShares

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Corporate Repurchases: “Single Biggest Category of Stock Buyers Today”

August 27, 2014

The longer this market moves higher, the more questions there seem to be about why.  ”What is causing the market to move up?”  Is it corporate earnings, interest rates, The Federal Reserve, companies buying back their own stock, or something else?  Admittedly, we spend little time trying to pinpoint what is causing demand (buying) or supply (selling) because it changes over time, and ultimately it is not necessary for an investor to understand the reason for the trend in order to participate.   In the words of Tom Dorsey:

While many of the concepts I learned in Economics 101 have been improved on over the years, one remains unchanged—supply and demand.  It is the driving force behind all price changes.  If there are more buyers than sellers willing to sell, then the price will rise.  If there are more sellers than buyers willing to buy, then the price will decline.  This is as true for the price of tomatoes as it is for the price of stocks.

That said, here is some interesting information about one very strong source of demand today.  From MarketWatch:

From arlines to 21st Century Fox Inc., U.S. companies keep buying back their own shares.

Buyback announcements jumped to a three-month high in July after faltering for a couple of months, and 2014 is on track to become the third-biggest year for buybacks ever, according to Minyi Chen, portfolio manager for the AdvisorShares TrimTabs Float Shrink ETF which picks stocks in part on their buyback trends.

He sees three big reasons for the boom in buybacks, and argues that companies shouldn’t be criticized so much for repurchasing shares in bull markets. Here are the three reasons:

1. Financial engineering: By repurchasing shares, companies can maintain or boost their earnings per share, even when their actual earnings aren’t so hot. The buyback shrinks the denominator — shares outstanding. “You can call it a little bit of financial engineering,” Chen told MarketWatch, but he said he sees the logic behind it for a company that wants to bolster its per-share earnings and sustain its stock’s momentum.

2. A better way to return money to shareholders: Companies are often criticized for buying back shares instead of investing in equipment or hiring, but Chen suggests that makes about as much sense as blasting dividend payments. He said a buyback is just another way of distributing corporate profit to shareholders, and it could be seen as a better (and increasingly popular) way of doing so because it avoids the double-taxation issue seen with cash dividends.

3. Offsetting employees who cash in: “A lot of people are criticizing the public companies for being poor market timers,” Chen said, referring to buybacks ramping up after stocks have climbed. But these critics don’t understand that “companies need to buy high,” he said, as they try to offset employees cashing in. When stock prices advance, more employees have in-the-money stock options and exercise them, while when stocks drop, employees hold back from exercising their options because they’re out of the money, the TrimTabs portfolio manager said.

Just how significant have corporate repurchases been?  According the the WSJ:

Companies purchasing their own shares represent the single biggest category of stock buyers today, according to a study this month by Jeffrey Kleintop, chief market strategist at brokerage firm LPL Financial.

Maybe, retail investors will come back to the equity markets en masse in the years ahead.  Maybe, corporations will continue to buy back shares.  Again, as trend followers it is most important to follow the trends, even without a full knowledge of the underlying sources of supply and demand.  The beauty of a point & figure chart is its ability to clearly reflect the broad trends in the market and that trend continues to be positive, as shown below in the chart of the S&P 500.

SP 500 Corporate Repurchases: Single Biggest Category of Stock Buyers Today

As of 8/27/14

This example is presented for illustrative purposes only and does not represent a past recommendation.  Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. 

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Rebirth of Separately Managed Accounts

August 18, 2014

InvestmentNews on the strong growth of separately managed accounts:

A class of products that have been around for a long time are undergoing a rebirth: separately managed accounts, or SMAs.

The recent sales figures have been impressive. SMA market assets have bounced back to levels last seen before the financial crisis — more than $762 billion at year-end 2013, according to Cerulli Associates Inc., with one-year growth of 23.1%. Cerulli Associates projects growth rates in separate accounts of 11.3% to 12.2% in each of the next four years.

The success of SMAs lies in their advantages: customization, transparency, tax efficiency and professional management. They can also offer flexibility in fees and a high value perception for clients attracted by the cachet of owning a professionally managed strategy in a more exclusive wrapper.

The concept is easy to explain, one reason that SMAs are gaining traction with clients. They fill the needs of retail investors wealthy enough to invest $100,000, and in some cases as little as $50,000, who want to move beyond pooled vehicles like mutual funds into portfolios with individual security ownership that are actively managed by professional asset managers.

Customization is a key differentiator in the marketplace. SMAs can help financial advisers demonstrate they are listening to the individual needs of their clients. Each SMA can be tailored to meet specific needs and goals. When investing in SMAs, advisers and clients can express preferences or restrictions concerning strategies or individual stocks, which can give them a greater sense of control.

For this reason, they are particularly attractive to clients with specific investment guidelines, and those who require additional hand-holding from their adviser. Increased demand for environmental, social and governance portfolios is fueling momentum in SMA strategies that apply sustainability-focused ESG integration. A shift away from traditional style box investing to outcome-oriented solutions is also fueling the movement to SMAs, as investors express greater desire for products addressing income, longevity and volatility risk.

In the wake of the financial crisis, transparency has become even more important to clients. With SMAs, advisers and clients see their actual holdings. They also receive full details on fees. This level of transparency lets high-quality asset managers prove their worth.

SMAs also provide excellent vehicles to assess and balance tax liabilities. The run-up of the equity markets has created considerable tax implications for many investors. The fiscal condition of public budgets indicates that taxes are likely to increase, not decrease, and many investors are seeking tax advantages mutual funds do not offer. Within an SMA there are no unearned gains and often trades can be balanced to address tax loss and gain harvesting. That can be highly attractive to investors who have large taxable assets and want access to particular portfolio managers or investment strategies. SMAs can also help those who want to create benefits for charitable giving.

All of the points that are made in this article ring true to my experience as well.  Click here to see where our SMAs are currently available.

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Buffett’s Drawdowns

August 15, 2014

Drawdowns of perhaps the world’s greatest investor, Warren Buffett:

Yesterday Warren Buffett’s Berkshire Hathaway stock price broke $200,000. Buffett’s performance over the years is an amazing feat.

Since 1980, when the price was in the $200-300 range, the stock has compounded at an annual rate of 21% per year. That’s good enough to double your money every three-and-a-half years.

But those returns didn’t always come easy to Buffett or his investors. There were times when his patient style of value investing was out of favor and the stock experienced large losses. Here are the biggest losses in Berkshire Hathaway stock since 1980:

buffett Buffetts Drawdowns

No way to earn the types of returns he has generated without taking some lumps along the way.

Source: Ben Carlson

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Sector Performance

August 15, 2014

The chart below shows performance of US sectors over the trailing 12, 6, and 1 month(s).  Performance updated through 8/14/14.

sector 08.15.14 Sector Performance

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    Source: iShares

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Sector Performance

August 8, 2014

The chart below shows performance of US sectors over the trailing 12, 6, and 1 month(s).  Performance updated through 8/7/2014.

sector 08.08.14 Sector Performance

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    Source: iShares

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Sector Performance

August 1, 2014

The chart below shows performance of US sectors over the trailing 12, 6, and 1 month(s).  Performance updated through 7/31/14.

sector 08.01.14 Sector Performance

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    Source: iShares

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Reality Check for Forecasting

July 28, 2014

I’d say this is a pretty compelling argument for trend following.  As shown below, the average strategist forecast for the S&P 500 is routinely way off.

forecasts Reality Check for Forecasting

Source: WSJ

Rather than even attempt to forecast the unknowable, trend followers simply stay with the trend, until it is time to move on.  See here, here, and here.

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Sector Performance

July 25, 2014

The chart below shows performance of US sectors over the trailing 12, 6, and 1 month(s).  Performance updated through 7/24/14.

sector 7.25.14 Sector Performance

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    Source: iShares

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Cullen Roche on Michael Covel’s Podcast

July 18, 2014

Listen to the 12:45 – 15:20 mark in this interview.  Cullen Roche has some key comments on pragmatism (something that we discuss regularly at DWA and a concept that separates winning investors from the rest).

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DWA Q3 2014 Update Webinar

July 18, 2014

Click here for our quarterly DWA webinar with Tom Dorsey, Tammy DeRosier, and John Lewis.

DWA Webinar DWA Q3 2014 Update Webinar

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Reconciling S&P 500 with US Economy

July 14, 2014

Interesting insights from Cullen Roche in Pragmatic Capitalism for those who have been having great difficulty trying to reconcile the strong performance of the S&P 500 in recent years with the less strong US economy.

The S&P 500 is no longer a US index.  It is becoming a global index, and understanding its constituents requires a global big-picture understanding as never before.  The big picture matters to market participants because US stock markets are becoming increasingly dependent on a stream of foreign revenues as they tap into foreign markets for business expansion.

Since 1990 S&P 500 companies have grown from generating 22 percent of their revenue from abroad to 30 percent.

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Sector Performance

July 11, 2014

The chart below shows performance of US sectors over the trailing 12, 6, and 1 month(s).  Performance updated through 7/10/14.

s c 07.11.14 Sector Performance

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    Source: iShares

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The Virtues of Pragmatism

July 10, 2014

Aren’t you glad you are a trend follower?  Leaving aside the potential performance advantages of trend following  for a moment, it is just less drama.  Case in point, as a trend follower you can avoid getting caught up in the endless debate about whether or not the market is overvalued.  Consider the following analysis from Barry Ritholtz:

It has become commonly accepted that stocks are very expensive, overbought and perhaps even in a bubble.

JPMorgan Chase & Co.’s latest quarterly chart book (you can download it here) takes issue with those conventions.

ii19S2zDTQng The Virtues of Pragmatism

As you can see from the chart above, U.S. equity prices closely match their long-term average price-to-earnings ratio of 15.5. That’s precisely at fair value if you are comparing it to the Standard & Poor’s 500 Index earnings-per-share average of analyst estimates for the next 12 months.

That is one of the most common ways to value companies, but there are plenty of other approaches that show stocks either over or undervalued.

It is commonly stated by those immersed is the valuation debate that valuations may not matter in the short-run, but they absolutely matter in the long-run.  That may be true, but when it comes to your experience as an advisor with your clients, what are the practical implications of getting out the of the market 3 years (as an example) before the bull market ends?  That’s right, you get fired.

The principle of keeping it simple, has served Dorsey Wright very well for almost three decades now.  What is a trend follower’s interpretation of the following chart of the S&P 500?  A positive trend with no signs of deterioration at this point.

SP 500 The Virtues of Pragmatism

Source: Dorsey Wright, as of 7/10/14

This is no way negates the need for prudent financial planning and asset allocation.  Nor does this make us perma-bulls.  It does, however, make us pragmatic.  As to whether or not trend following “works” I would recommend reading the following white papers by John Lewis:

This example is presented for illustrative purposes only and does not represent a past recommendation.  A relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.

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Path of Least Resistance

June 27, 2014

Encouraging chart, courtesy of Craig Johnson, CFA, CMT of Piper Jaffray:

pj sp 500 Path of Least Resistance

(Click to enlarge)

Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.  This example is presented for illustrative purposes only and does not represent a past recommendation.

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Sector Performance

June 27, 2014

The chart below shows performance of US sectors over the trailing 12, 6, and 1 month(s).  Performance updated through 6/26/2014.

sector 06.27.14 Sector Performance

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    Source: iShares

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Relative Strength Spread

June 24, 2014

The chart below is the spread between the relative strength leaders and relative strength laggards (universe of mid and large cap stocks).  When the chart is rising, relative strength leaders are performing better than relative strength laggards.    As of 6/23/14:

spread 06.24.14 Relative Strength Spread

This example is presented for illustrative purposes only and does not represent a past recommendation.  The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.   Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. 

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Weekly RS Recap

June 15, 2014

The table below shows the performance of a universe of mid and large cap U.S. equities, broken down by relative strength decile and quartile and then compared to the universe return.  Those at the top of the ranks are those stocks which have the best intermediate-term relative strength.  Relative strength strategies buy securities that have strong intermediate-term relative strength and hold them as long as they remain strong.

Last week’s performance (6/9/14 – 6/13/14) is as follows:

ranks 06.15.14 Weekly RS Recap

 

This example is presented for illustrative purposes only and does not represent a past recommendation.  The performance above is based on pure price returns, not inclusive of dividends or all transaction costs.  Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. 

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Fund Flows

June 5, 2014

Mutual fund flow estimates are derived from data collected by The Investment Company Institute covering more than 95 percent of industry assets and are adjusted to represent industry totals.

ici 06.05.14 Fund Flows

This data is presented for illustrative purposes only and does not represent a past recommendation.

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