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Critical Thinking: Cyclical Stock Potential

7 days ago

At a time when many investors are taking a hard look at their portfolios, good information is more important than ever. Sadly, it is even harder to come by. There is no substitute for applying your own critical thinking skills to the opinions you see. A featured guest on CNBC, Senior Investment Analyst for a major firm, provided a test of that skill. (CNBC put the interview behind their paywall, but I record these programs to verify my analysis.

Interview
The guest had just issued a downgrade for the industrial sector.

His first reason was that the stocks were back to levels at the start of 2019. He questioned the 30% rally in the sector when earnings were only up 10%. He called the 20% difference a “ballistic move” in the stocks, pushing them to excessive valuations bordering on

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Weighing the Week Ahead: A Quest for Clarity

16 days ago

Once again, no one cares about the economic calendar. There have been big changes with more to come. While many claim to know what those changes will be, I see only speculation.

We must embark on a quest for clarity.
This implies the willingness to seek new information and go where it leads us.

In my last installment of WTWA, I predicted an explosion of pundit predictions. In a world without meaningful data, all opinions are equal. This was an accurate guess. I will not spend much time on the noise. Suffice to say that uncertainty reinforced fear. All stocks and sectors moved in a highly correlated fashion. The week began with a negative reaction to the second emergency Fed move, reducing rates to near-zero. Instead of calming markets, this created additional panic among those

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Weighing the Week Ahead: A Pundit’s Paradise – Anyone Can Play

23 days ago

We have a full economic calendar. Only the FOMC decision will get major market attention. Initial jobless claims provide a post-virus look at the job market. Housing data remains interesting.

Despite this, the media focus will remain on the coronavirus crisis. In the absence of any solid economic data, and in the spirit of the new populism, everyone’s opinion is equal. Stating the obvious passes for great wisdom. Any deeper look seems silly.

It is what I call:

A Pundit’s Paradise. Anyone can play.

In my last installment of WTWA, I predicted little attention to the economic news. That expectation was certainly accurate! I emphasized the need for investors to decide upon and emphasize the time frame that fit their purposes. I also pooh-poohed [OldProf technical term for

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Weighing the Week Ahead: Why it is Crucial to Use the Right Time Frame

March 8, 2020

We have a modest economic calendar. Only two reports will provide any hint about the coronavirus economic impact. The punditry will not be hampered. Without meaningful data, speculation blossoms. There is one idea that could help both your interpretation of data and your investment decisions. We should be emphasizing:

The crucial importance of time frames.
I am going far beyond the common advice of buy-and-hold and ignore what is happening. I hope to show how the choice of time frame affects every aspect of an important time for investors.

My last installment of WTWA, I expected little attention to the economic news. Instead, I predicted discussion about the “message of the markets,” and plenty of variation in what that might be. That was an accurate forecast for the week,

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Weighing the Week Ahead: Should Investors Heed the Message of the Markets?

March 1, 2020

We have a big economic calendar featuring employment news and the latest ISM survey. In normal times, observers would be parsing the data to adjust their economic and earnings expectations. Next week few will care. The market ignored last week’s reports and there is no reason to expect a change to “old news.” Instead, the punditry will be asking:

Should investors heed the message of the markets?
And expect plenty of variation in just what that message might be!

My last installment of WTWA, I expected attention to the wisdom of Mr. Buffett, highlighting his annual letter to investors. That prediction was accurate (barely) until markets opened Monday morning. The coronavirus spread beyond China, mentioned in last week’s “worry” list, became the most important story and lasted all

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Weighing the Week Ahead: Should Investors Heed the Message of the Markets?

March 1, 2020

We have a big economic calendar featuring employment news and the latest ISM survey. In normal times, observers would be parsing the data to adjust their economic and earnings expectations. Next week few will care. The market ignored last week’s reports and there is no reason to expect a change to “old news.” Instead, the punditry will be asking:

Should investors heed the message of the markets?
And expect plenty of variation in just what that message might be!

My last installment of WTWA, I expected attention to the wisdom of Mr. Buffett, highlighting his annual letter to investors. That prediction was accurate (barely) until markets opened Monday morning. The coronavirus spread beyond China, mentioned in last week’s “worry” list, became the most important story and lasted all

Read More »

Weighing the Week Ahead: Investors Can Always Learn Something from Mr. Buffett

February 23, 2020

We have a big economic calendar including important data on consumer confidence, personal income and spending, and inflation. There will also be another round of housing news – two measures of prices, new home sales, and pending home sales. While it is not expected to change, the second estimate of Q4 GDP will be reported.
While these economic reports will claim attention later in the week, we know how it will start. The punditry will be asking:
What does Warren think?
And then they will offer their own opinions!

My last installment of WTWA, I emphasized housing data and trends, partly because so many key reports were coming out. The media followed this topic in some segments, but sometimes suggesting there was a “crisis” because of shortages and affordability. Even investment programs

Read More »

Weighing the Week Ahead: Investors Can Always Learn Something from Mr. Buffett

February 23, 2020

We have a big economic calendar including important data on consumer confidence, personal income and spending, and inflation. There will also be another round of housing news – two measures of prices, new home sales, and pending home sales. While it is not expected to change, the second estimate of Q4 GDP will be reported.
While these economic reports will claim attention later in the week, we know how it will start. The punditry will be asking:
What does Warren think?
And then they will offer their own opinions!

My last installment of WTWA, I emphasized housing data and trends, partly because so many key reports were coming out. The media followed this topic in some segments, but sometimes suggesting there was a “crisis” because of shortages and affordability. Even investment programs

Read More »

Weighing the Week Ahead: Is It Too Late to Invest in Housing Stocks?

February 16, 2020

The economic calendar is modest, and the trading week is holiday-shortened. The most important reports all relate to housing – prices, sales, and plans. With markets viewed as fully or excessively valued by many, there is some renewed interests in finding some attractive remaining sectors. While some political or geopolitical news may well claim the spotlight, even on financial news. That said, this is the closest to a “normal” week for stock analysis that I have seen in a very long time. I expect many to analyze the data and ponder:

Is it too late to invest in housing stocks?

My last installment of WTWA, either through operator or software error, overwrote the prior week’s post. It therefore carries the wrong date of February 2, 2020, but it is last week’s story. I’ll replace the

Read More »

Weighing the Week Ahead: Is It Too Late to Invest in Housing Stocks?

February 16, 2020

The economic calendar is modest, and the trading week is holiday-shortened. The most important reports all relate to housing – prices, sales, and plans. With markets viewed as fully or excessively valued by many, there is some renewed interests in finding some attractive remaining sectors. While some political or geopolitical news may well claim the spotlight, even on financial news. That said, this is the closest to a “normal” week for stock analysis that I have seen in a very long time. I expect many to analyze the data and ponder:

Is it too late to invest in housing stocks?

My last installment of WTWA, either through operator or software error, overwrote the prior week’s post. It therefore carries the wrong date of February 2, 2020, but it is last week’s story. I’ll replace the

Read More »

Weighing the Week Ahead: Why is Everyone (Else) so Confused?

February 2, 2020

The economic calendar is modest, but important, with an emphasis on inflation and confidence – both business and consumer. We will see reports from over 60 S&P 500 companies, and the results of the New Hampshire primary. That includes plenty of real news, but I expect a somewhat different focus. Last week was unique. I have never seen such a struggle to find a daily reason for stock market shifts. Even the traditional method of getting the result first and then manufacturing a reason left heads shaking. When the facts seemed so clear to traders and pundits, why was the market not following the obvious fundamentals?

Expect to hear the question:

Why is everyone else confused and out of step?

In my last installment of WTWA, I analyzed the Coronavirus outbreak from several

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Weighing the Week Ahead: Coronavirus – Cause for Analysis or Paralysis?

February 2, 2020

The economic calendar is a big one, including the employment report and the ISM data. We’ll have plenty of political news and corporate earnings. Despite these candidates for attention, I expect investors to join others in a close watch of coronavirus developments. As usual, there are many newly minted experts ready to describe the investment implications. It is not an easy task, as we shall see in today’s post. Expect the punditry to be asking:

Should investors bail out, sit tight, or wait for more information?

In my last regular installment of WTWA, (two weeks ago) I highlighted the importance of watching corporate earnings reports. That has indeed been a regular topic, despite competition from other breaking news.

I hope readers also checked out my Seeking Alpha 2020 preview

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Weighing the Year Ahead: Positioning for 2020

January 26, 2020

Seeking Alpha has once again invited me to participate in their annual preview series. Unlike my other posts, this is an exclusive for SA, but there is no charge to see it. I hope you will read it there.

I’ll be back to WTWA next week. For those who like to check the numbers regularly, here is the current Indicator Snapshot.

Read More »

Weighing the Year Ahead: Positioning for 2020

January 26, 2020

Seeking Alpha has once again invited me to participate in their annual preview series. Unlike my other posts, this is an exclusive for SA, but there is no charge to see it. I hope you will read it there.

I’ll be back to WTWA next week. For those who like to check the numbers regularly, here is the current Indicator Snapshot.

Read More »

Weighing the Week Ahead: All Eyes on Earnings

January 19, 2020

The economic calendar is one of the lightest we will see in 2020, and we have a holiday-shortened week. Economic data will not be the main story. The news will be filled with Impeachment updates, but that is not a focal point for investors. For us there are 144 earnings reports from S&P 500 stocks. It will be a case of:

All Eyes on Earnings

In my last installment of WTWA, I asked whether it was yet time to worry about inflation. It has been so tame that most do not see the risk. I said that I was probably still early in this worry, and so it was. I also failed to reach much of my audience. Despite my rationale that understanding the Fed helps your investing more than railing against the government’s inflation numbers, many remain unconvinced. At least I tried!

Mrs. OldProf

Read More »

Weighing the Week Ahead: All Eyes on Earnings

January 19, 2020

The economic calendar is one of the lightest we will see in 2020, and we have a holiday-shortened week. Economic data will not be the main story. The news will be filled with Impeachment updates, but that is not a focal point for investors. For us there are 144 earnings reports from S&P 500 stocks. It will be a case of:

All Eyes on Earnings

In my last installment of WTWA, I asked whether it was yet time to worry about inflation. It has been so tame that most do not see the risk. I said that I was probably still early in this worry, and so it was. I also failed to reach much of my audience. Despite my rationale that understanding the Fed helps your investing more than railing against the government’s inflation numbers, many remain unconvinced. At least I tried!

Mrs. OldProf

Read More »

Weighing the Week Ahead: Is It Time to Worry About Inflation?

January 12, 2020

The substantial economic calendar features inflation reports and housing, but also includes Michigan sentiment, the Fed’s Beige Book, and NFIB sentiment survey. We will also get the first earnings reports for the Q4 season. Of late, the calendar has not provided much of a clue to the upcoming market action. More than ever, we just know what to watch for. I am probably a little early on this week’s theme, but there are some signs of increasing interest among good sources. Some thought leaders are wondering:

Is it time to worry about inflation?
With both the PPI and CPI reports this week, now is as good a time as any to consider this question.

In my last installment of WTWA, I anticipated a week-long focus on the U.S./Iran confrontation. That was the case, underscored by a

Read More »

Weighing the Week Ahead: Is It Time to Worry About Inflation?

January 12, 2020

The substantial economic calendar features inflation reports and housing, but also includes Michigan sentiment, the Fed’s Beige Book, and NFIB sentiment survey. We will also get the first earnings reports for the Q4 season. Of late, the calendar has not provided much of a clue to the upcoming market action. More than ever, we just know what to watch for. I am probably a little early on this week’s theme, but there are some signs of increasing interest among good sources. Some thought leaders are wondering:

Is it time to worry about inflation?
With both the PPI and CPI reports this week, now is as good a time as any to consider this question.

In my last installment of WTWA, I anticipated a week-long focus on the U.S./Iran confrontation. That was the case, underscored by a

Read More »

Weighing the Week Ahead: Will Middle East Conflict Bring an End to the Bull Market?

January 5, 2020

The economic calendar features the employment situation report at week’s end with a preview from the ADP on Wednesday. In my early WTWA preparation I expected some reallocation action by those returning from vacation, and a focus on employment as a key economic read. I still believe that both will happen, but the U.S./Iran confrontation has taken center stage. There are so many dimensions and so much uncertainty. Financial media will pursue each of the many threads, not always sticking to market implications. The key question will be:

Will Middle East conflict bring an end to the bull market?

In my last installment of WTWA, I ventured that the discussion of data would take a back seat to market forecasting. I raised the question of how best to use history in making a forecast. I

Read More »

Weighing the Week Ahead: Will Middle East Conflict Bring an End to the Bull Market?

January 5, 2020

The economic calendar features the employment situation report at week’s end with a preview from the ADP on Wednesday. In my early WTWA preparation I expected some reallocation action by those returning from vacation, and a focus on employment as a key economic read. I still believe that both will happen, but the U.S./Iran confrontation has taken center stage. There are so many dimensions and so much uncertainty. Financial media will pursue each of the many threads, not always sticking to market implications. The key question will be:

Will Middle East conflict bring an end to the bull market?

In my last installment of WTWA, I ventured that the discussion of data would take a back seat to market forecasting. I raised the question of how best to use history in making a forecast. I

Read More »

Weighing the Week Ahead: Does Historical Analysis Improve Market Forecasts?

December 29, 2019

The economic calendar is normal in another week split by a holiday. Many market participants will not show up until Thursday – and perhaps not even then. The ISM reports, manufacturing and non-manufacturing, are both post-holiday. My guess is that the financial media will continue the attention to 2020 outlook ideas. Some reporters will take a look instead at events from the past decade. This raises a good question for our consideration:

Does analyzing history improve our market forecasts?

In my last installment of WTWA, I accurately predicted continuing discussion of 2020 outlook from some names and faces that are not as familiar to the investment community. That was pretty easy. There was discussion of my theme, complacency, since that is a popular way of describing the

Read More »

Weighing the Week Ahead: Does Historical Analysis Improve Market Forecasts?

December 29, 2019

The economic calendar is normal in another week split by a holiday. Many market participants will not show up until Thursday – and perhaps not even then. The ISM reports, manufacturing and non-manufacturing, are both post-holiday. My guess is that the financial media will continue the attention to 2020 outlook ideas. Some reporters will take a look instead at events from the past decade. This raises a good question for our consideration:

Does analyzing history improve our market forecasts?

In my last installment of WTWA, I accurately predicted continuing discussion of 2020 outlook from some names and faces that are not as familiar to the investment community. That was pretty easy. There was discussion of my theme, complacency, since that is a popular way of describing the

Read More »

Stock Exchange: Time to Batten Down the Hedges?

December 27, 2019

Summary
Stops or hedges? Both limit risk but in different ways. Which should be preferred? Does your choice depend upon the market? And people are already confused by “batten down the hatches” (explained here). Does battening down a hedge mean tightening it or taking it off? I don’t know!
Jeff: Joining me on the Stock Exchange is my colleague Todd E. Hurlbut, CMT, Chief Investment Officer at Incline Investment Advisors, LLC. Todd is the creator of the Emerald Bay model featured in this column. He is known as “Trending Todd.” And yes, that is a hint about his trading style.
The Stock Exchange is all about trading. Each week, we do the following:

Discuss an important issue for traders,

Highlight several technical trading methods, including current ideas,

Feature advise from

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Weighing the Week Ahead: Are Investors Too Complacent?

December 22, 2019

The economic calendar is very light and interrupted by the mid-week holiday. We can always see volatility when volume is low, but many market participants will be on an extended holiday. This includes much of the A-team punditry, but someone will be left to fill the airtime. Some will continue the outlook theme I covered last week, but I expect many to be asking:

Are investors too complacent?
It is an interesting question, especially considering recent events that suggest danger to many observers. As usual, I’ll include a range of ideas and offer some comments on each.

In my last installment of WTWA, I took note of the big economic calendar but predicted that most would prefer to discuss 2020 market forecasts. That was an accurate guess. The week was filled with such reports. The

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Stock Exchange: Intuition or Intu wishing?

December 17, 2019

Jeff: Joining me on the Stock Exchange is my colleague Todd E. Hurlbut, CMT, Chief Investment Officer at Incline Investment Advisors, LLC. Todd is the creator of the Emerald Bay model featured in this column. He is known as “Trending Todd.” And yes, that is a hint about his trading style.

Summary
We want to be right most if not all the time. Our egos are tied into how we are perceived by others. Investing and trading can be a humbling business because what we expect to happen, no what we “know” will happen, often does not. The reality, however, is that nobody has a crystal ball. Nobody on CNBC is more clairvoyant that anyone on Bloomberg or anyone watching at home for that matter. Fortunately, successful investing doesn’t require us to be right all the time but instead to be able to

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Weighing the Week Ahead: Whose Year-Ahead Vision is 20/20?

December 15, 2019

The economic calendar is especially important. Several housing reports, JOLTs, and the final estimate for Q3 GDP lead the list. Despite this, I suspect a powerful draw from the Gregorian calendar. It is time for those annual forecasts! You will see many of them, so the right question is:

Whose vision of the year ahead is 20/20?
I’ll consider a typical range of ideas and offer some comment on each.

In my last installment of WTWA, I provided a gift for readers – the gift of time. Many seemed to appreciate the list of things to ignore. Knowing where to focus your attention is one of the biggest challenges for investors. I considered some factors behind the continuing market rally. For comparison, readers might appreciate The Unending Artificial Boom, a response to the devotees of

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Weighing the Week Ahead: Will This Rally Never End?

December 8, 2019

The economic calendar is moderate, with the FOMC decision, retail sales and inflation data. None of these promises to create a big market movement. With the temptation to look to next year, I expect plenty of discussion about the extended bull market. Expect many to be asking in frustration:

Will this never end?

I always start my personal review of the week by looking at a great chart. This week I am featuring the version from Investing.com. If you visit the original, you will see many interactive features, including the news events indicated on the chart.

The market gained 0.2% for the week. The quiet overall results conceal the trading range of 2.6%. You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner

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Stock Exchange: In Investing and Trading Asking “Why?” Can be a Mistake

November 26, 2019

Jeff: Taking the lead for the Stock Exchange report is my colleague Todd E. Hurlbut, CMT, Chief Investment Officer at Incline Investment Advisors, LLC. Todd is the creator of the Emerald Bay model featured in this column. He is known as “Trending Todd.” And yes, that is a hint about his trading style.
Summary
Humans have an insatiable desire to know why. Whether curious children (like my 5 and 8-year-old using the “Why” word 50 times a day) or investors trying to understand a market move, we can’t help but want to know why? However, reasons why market moves are happening can be distracting if not counterproductive. Most people think it’s the news that makes the price move. Often the price will move, and journalists must search out the reason to justify or explain the price action. A

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Weighing the Week Ahead: All Eyes on Black Friday

November 24, 2019

The economic calendar is loaded with data and we have a holiday-shortened week. In some circumstances the many economic reports and the Washington stories would dominate. This week the market and economic context suggests a different theme:

Will Black Friday results confirm consumer strength? Can this spark the typical Santa Claus rally, or should we expect (like last year) a big lump of coal?
Since there is no easy answer, the investment community will be watching closely for hints.

In my last installment of WTWA, I took advantage of a quiet calendar to ask whether we should be worrying about debt. I did not expect this to be a media favorite, but it never is. We must occasionally take up matters that are important beyond today’s trading! Readers seemed to enjoy the discussion and

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Stock Exchange: Good Trade yet you lost money?

November 19, 2019

Jeff: Joining me on the Stock Exchange is my colleague Todd E. Hurlbut, CMT, Chief Investment Officer at Incline Investment Advisors, LLC. Todd is the creator of the Emerald Bay model featured in this column. He is known as “Trending Todd.” And yes, that is a hint about his trading style.
Summary
One important consideration related to investing is the need to separate process and outcome. Making an investment decision based on one’s proven process yet losing money can be a painful experience, yet par for the course. Separating decisions from outcomes is necessary to understanding process. A recent article in the Wall Street Journal What Investors Can Learn from the Best Poker Players quoting successful poker player Annie Duke discusses such behavior:
‘To deal with uncertainty, she

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