Buy Agriculture Now?

Yes, COW
I am not a financial professional, and cannot recommend equities for you to buy.  Having said that, I want to share my analysis with you.  I do this as a means of teaching others a (relatively) simple approach to arriving at price targets.  Why agriculture?  This is a seasonally strong period of the year for agriculture stocks.  Second, my calculations  indicate there is as much as a 24 percent upside to the Exchange Traded Fund (ETF) with the ticker symbol COW on the TSX as at Saturday, Sept. 22.  I will provide additional details of my calculations over the next few posts, but first, a little more about COW.

Diversification
iShares lists the top holdings in COW by weighting.  By adding the weightings, we can see the top 13 companies make up 81 percent of the fund.  These companies are headquartered in Canada, the U.S., Chile, Brazil, Japan, and Switzerland.  As in this case, ETF's give me the most diversification at the cheapest price.  I could go out and buy each of the 13 companies (or only the one's I like), but the cost of the commissions to do so quickly adds up.

Price
Prices of ETF's such as this one follow an index.  As such, there is no fund manager deciding which company to buy, and when.  iShares manages the fund so it reflects the holdings in the index it is tracking.  The price follows that of the index because institutional providers package up the stocks of companies in the index to sell to iShares when it is cheaper to do so, and buy them back again when they become cheaper than the stocks. As a result, the constant buying and selling of ETF units causes the price of the ETF to mirror the index of stocks.  Price is a function of earnings.  At any given point, we can show the price of a share of stock as being the amount of company earnings divided by the number of shares multiplied by some number.  In other words, Price = Earnings/Share Times X.  Calculate the future price based on future earnings for most of the companies in an ETF, and we can compute the target price of the ETF.

Technical Analysis
Technical Analysis only goes so far when it comes to individual stocks.  That is doubly true of stocks which have a limited trading volume.  A volatile market such as the one we find ourselves in currently compounds the problem even more.  A price of a widely held ETF of widely held stocks is much more predictable than a single company.  The fundamental analysis I am in the process of sharing with you shows me what to buy.  I then use technical analysis to determine when to buy what I have calculated as having a cheap valuation relative to the current price.

Questions?  Comments?


   

Don Vialoux On The TSX

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Don's research identifies the time period of Sept. 16 to Oct. 9 as a period of seasonal weakness.  He believes the technical indicators are now pointing to a correction.  This correction is, on average, 4.0 percent for the TSX index.  He expects markets to go higher after the U.S. election.  With the debate surrounding the fiscal cliff in the U.S., I expect volatility to be higher than usual, especially if trading volumes remain low.  I think they will get the job done to avoid the future tax increases from automatically kicking in, but it will come at a cost, further weakening people's faith in the system, and the markets.

Anyone have an opinion they wish to share?

Happy Birthday "Occupy"

Robert Johnson asserts that the system of money and politics in Washington is broken, and then they launch into a discussion about education being the real problem.  I am not saying there aren't problems in the education system in the U.S., but I think there is a state of denial which prevents them from seeing that the real issue is the hijacking of the political process by well-financed lobbyists.  While high unemployment may swell the ranks of the Occupy Movement, I sense it is the polarization of the rich looking out for the rich and the poor left to fend for themselves which is at the heart of the protest.  Being out of a job is one thing; losing faith in the ability of the system to bring a return to prosperity (except for the rich) is an entirely different (and more volatile) situation.

August 2012 Returns

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Seasonality at this time of year still favours Energy, Gold, Agriculture and Natural Gas. Natural Gas is the only sector not participating, possibly due to the run up in June and July. North American equity markets continue to trend higher.  My time horizon remains short as we enter into the worst seasonal period of the year based on historical trends.

I had made a choice not to play gold, even though seasonality favours it at this time of year.  First, I would rather invest in gold companies rather than bullion, and a big enough decline in the market causes everything to drop at the same time.  At such times, even gold offers little protection.  Second, I wasn't crazy about the idea of holding a more highly volatile ETF given the high market volatility.  I am now thinking that was the wrong decision, but take comfort in not, potentially, putting funds at risk.  I am all about risk vs. reward, although in this case I underestimated the reward potential  Still, a dollar saved is a dollar I can use later.
  
20 month return for TSX @ August 31, 2012 = -10.94 percent
Return for Basic Timing Model Using XIU =        9.59 percent
Return for Advanced Timing Model =                -4.36 percent
Money for charity =                                        $0.00

Comments? Suggestions?

September To Be "Nasty"?

If you are familiar with my blog, you probably know I advocate using the 200-day moving average as a buy/sell signal.  Bad things tend to happen when the market is below its 200-day moving average.  David Mcalvany compares today's markets to 1987 - low volume and high volatility.  The big drop in 1987 came just after the market had sunk below its 200-day moving average (in October).  Currently the markets are above their 200-day moving average, but I do not expect that to continue during September/October.  When that happens, it could be a good sign to take some money off the table, if you haven't done so, by that time.

What would it take for you to reduce your equity portfolio?

Odds Are?

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The closer we get to the U.S. election date this fall, the less likely it is we will see any intervention in the markets by the Federal Reserve.  Recent economic data has been just good enough to forestall any immediate intervention.  In order to not appear as they are meddling in the elections, there is a period of time just prior to that when they have their hands tied.  Few seem to agree, but to me, there is little that the Fed has left to do.  Perhaps many more would agree with the fact that much of what the Fed can do is already baked into the markets.  Regardless of what the Fed might do, the fact is, we are only a couple of weeks away from what, historically, has been the worst month of the year in the stock markets.

Bearishness

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Risk On; Risk Off
My desire in writing this blog is to share my years of experience in the stock market in the hope of helping others to be successful.  My approach has evolved over the years, and continues to, as the opportunities arise.  Currently, I am trading Exchange Traded Funds (ETF's), rather than individual stocks.  Lately, the market has all but ceased trading on fundamentals, and is following some irrational "risk on", "risk off" approach.  ETF's add diversification and more predictability during these highly volatile times.

Nothing To Show
Because of the market volatility I am trying to develop more of a trading methodology, with mixed success.  Since I am not at the point where I feel this would be helpful to others, I decided earlier in the year to share my investing club trades in this blog.  The problem is there hasn't been any trades.  Prior to the end of last year we purchased two inverse ETF's.  One makes money as the Nasdaq goes down, and the other as the TSX goes lower.  We are also holding some silver coins.

Moving Averages
None of those positions in our investing club has proven profitable, year-to-date.  With the exception of the Nasdaq, neither has there been any longer term signals which would justify reversing these positions.  You might know from other posts on this blog that I recommend using the 200-day moving average to manage risk.  The TSX has been below its 200-day moving average most of the year except for a brief high it made at the end of February.

Invest Responsibly
I have three reasons for remaining bearish.  In order to take a responsible and more conservative approach, I am not going to recommend bullish trades to my readers or to members of my investing club while the TSX remains below its 200-day moving average.  While I might take a more aggressive approach with my own personal money by making very short-term tactical trades, sharing those would not be helpful to people who aren't sitting in front of their online investment account all day.

Long Term Trends
Secondly, long term trends are negative.  The deleveraging required to restore government budgets and remove most of the unnecessary  risk in financial markets is going to take years to come.  Demographics will not substantially improve before the end of the decade.  If we look at the U.S. markets they have already reached a peak according to the Elliott Wave theory.  Trust in government intervention is almost all that is currently propping the markets up.  Wait until everyone wakes up to the fact it isn't going to make any real difference!

Head & Shoulders
The third reason is the technical pattern called a Head and Shoulders which the TSX is making.  This is a very bearish pattern which, if we break the horizontal neckline just beneath the recent lows, it could mean a possible return to our 2008/2009 lows.

Cash Is King
I know there is a segment of investors who would scoff at my lack of returns this year.  They would say four or five percent dividend returns is good in this environment.  Those are likely the same people who lost half, or more, of their life savings during the last great recession.  Let's see - four percent upside and 30 percent downside, that is not a bet I am willing to make.  As for not knowing when to get back into the market, I know where that point is, and it is NOT here, except for very short-term tactical trades.  In the mean time, my funds are mostly in cash, thank you very much.

That is my outlook.  Does your outlook differ?