Archive for September 12th, 2007
Which Days To Invest – what to expect
Interesting charts again from Techfarm.com showing which days are most likely to be up as well as which have the widest trading range. We also clearly saw Tuesday (yesterday) having a very wide range as shown here.
Futures look to point to the downside. I still don’t expect us to stay above 1470 on the S&P 500 for the week and below 1490 until the Fed meeting. I also see the financials headed much lower tomorrow off of the weak close in GS yesterday. We shall see though…
Cyclical Moves In Fixed Income
Mo.Govt Bonds Govt Bonds Govt Bonds Corp. Bonds Corp. Bonds Corp. Bonds T-Bills T-Bills
1915-1998 1948-1998 1973-1998 1915-1998 1948-1998 1973-1998 1948-1998 1973-1998
Jan. 0.18 0.30 0.49 -0.47 -0.43 0.023 - 1.95 -0.48
Feb. 0.28 0.60 1.23 0.14 0.39 0.91 -1.17 0.26
Mar. 0.14 0.63 0.98 0.52 0.77 0.67 0.82 2.37
Apr. 0.09 0.38 0.44 0.32 0.45 0.42 0.21 -2.25
May 0.36 0.76 0.56 0.37 0.53 -0.13 -0.06 0.86
June -0.35 -0.35 -1.21 0.06 0.13 -0.81 0.27 0.36
July -0.11 0 0.20 -0.05 0.23 0.44 2.68 0.87
Aug. 0.50 0.53 0.34 0.01 0.05 -0.06 5.96 1.94
Sep. 0.39 0.22 -0.24 1.10 0.53 0.26 -1.51 -2.43
Oct. -0.28 -0.29 -0.54 -0.23 -0.02 -0.17 -0.10 -0.82
Nov. -0.20 -0.39 -0.87 -0.45 -0.56 -1.28 1.61 -0.09
Dec. 0.04 -0.10 -0.82 0.08 0.14 -0.02 1.60 -0.47
Great info for those who wish to invest in fixed income as well as understanding the cyclical nature of equities.
Source: Global Financial Data
Sell In May And Go Away – and other fancy tricks
It’s a myth. The end? Not quite, there is a compelling argument for it. I was recently turned onto this article after reading techfarm.com. The article states,
“The Stock Trader’s Almanac has demonstrated this by tracking what would happen to a $10,000 investment in the stocks that make up the Dow Jones industrial average.
Money invested in the Dow stocks in the “best six months” and then switched to fixed income in the “worst six months” over 56 years grew to $544,323. But money invested in the Dow in the “worst six” and then switched to fixed income in the “best six” compounded to a loss of $272.”
Convincing isn’t it? But “Sell in May and go away” is still a myth. How? Well this article provides us with all we need to know. Stock market returns average out to be 10% on an annual basis. So we take their same $10,000 and invest it for 56 years at 10% and we get $616,000. A return of $71,677 better than the sell in May strategy.
This is the type of fancy tricks that are rampant in stock market analysis and need to be avoided at all costs. Does there tend to be a cyclical nature in stocks and bonds? Absolutely, but equities in a long term perspective out preform every asset class even when you try and use fancy rhymes that work out to be compelling stories but not sound financial advice. There is one positive we can take from this article, don’t overweight fixed income unless it’s in the summer (actually that is not true either and I will go into it in another post).
Removing The Uptick Rule
On July 26th the SEC removed the uptick rule. This was a Rule put in place in the 1930’s to make sure that short sellers did not have what was deemed at the time an unfair advantage given market conditions. This rule simply forced short sellers to sell at a price above the last price of a stock, or at the price of the stock’s last trade if it was higher than the previous price. However, on July 26th the SEC removed this rule.
Other markets that have changed this rule as well have experienced short term volatility, then things settle down and a more liquid orderly market will be seen. According to Robert Schumacher at Van Kampen Investments, from July 6th through August 6th last year we did not have any 2% daily moves. This year, we’ve had 18. He also reiterates the opinion that things will settle down as this rule change moves its way through the system.
ETF’s are exempt from this rule.
I believe this does explain why we have seen so much volitility in the past month or so. Yes, there are problems in the system. However, I do think this a game changing move that investors need to be aware of when worrying about the volitility we have seen as of late.
