TLT, IEF Trend Analysis

Despite considerable weakness in the general market, the short-term trend remains up.  I define the short-term trend using a 20 and 50 day exponential moving average.

Because I want the odds to be as much in my favour as possible, I only buy stocks when the short and long term trend of the general market are up.  Therefore, when the short-term trend changes, I will have to go into cash or bonds. 

Going into bonds when the markets are going sideways or down has worked for me in the past, as the chart below shows:

The chart above outlines the areas where the short-term trend of SPY turned down and also shows correspondingly how bonds, as measured by TLT, did.  The bond ETF tends to do quite well during market corrections.

Next, is another bond fund, that contains shorter term maturities, IEF:

If the general market's trend changes, I may go back into US Bonds.  Although the technicals look strong, the fundamentals for US government bonds seem incredibly weak.   In fact, here is what legendary investor Jim Rogers had to say about the topic:

It's too late for moderate measures. We're coming to a time when only only strong measures will stop the haemorrhaging.  Even if we somehow balance the budget tomorrow, there's still the debt of trillions of dollars for someone to pay...  If this sounds radical, all I can say is wait until everything collapses around us. 

Would you buy US Bonds after hearing such dire words?   Yes, if you have a trading plan, use risk management, and have an exit strategy, you can ignore all forecasts.   Rogers, by the way, wrote this not this year, nor last year, but way back in 1994 in his otherwise great book, Investment Biker.  

Apple Trend Ends, Australian Stocks Hit New High

The chart below is a daily chart of AAPL.   This stock has been in a short and long term up trend for almost a year and has rewarded trend followers handsomely.   As is often the case, this stock shows that what often seems "too high" often simply goes even higher.  

However, the short term trend did turn down last week, which is a signal to close out any long positions in the stock.   Because the long term trend remains up though, my system would not allow shorting this stock.

Last week, I mentioned that the TSX entered a new bull market.   I am still seeing a lot of strength in resource related sectors.   The chart below shows the Canadian iShares performing much more strongly than QQQ:

Similarly, the Australian iShares hit a new 52-week high on Thursday:

Lastly, for next week, I plan on adding to my second biggest winner currently in my account, SNA:

By any definition, this stock is in an uptrend, hitting new highs and showing relative strength.  

I only placed one trade this week, which was to sell GRU.   I bought this grains ETF while it was making fresh new highs, but it subsequently reversed to quickly become my biggest loser.   Fortunately,  because risk management is of paramount importance to me, this lose only resulted in my total account equity dropping by 2%.

This theme of risk management, drawdowns and the idea of process versus outcome is brilliantly touched on by Australian trend follower Nick Radge in the video below:

Silver Miners, TSX Showing Strength

Most stock indices have been down for the past 6 consecutive days, but what I would like to point out is that all global markets remain in up-trends.

The short-term trend for the S&P 500 turned up in early July and remains up today, as the chart below shows:

I define the short term trend using a 20 and 50 day moving average, which are still positively aligned at this moment.  Following my rules, I am allowed to continue holding stocks in my account for as long as that condition is true.

Meanwhile, as US markets meander, most commodities are either making new highs or are consolidating.   Silver miners, for example, recently entered a new bull market this week:

The chart above shows SIL, a silver miners ETF.   Notice the recent relative strength on this one.  In addition to this ETF,  other funds such as: GDX, GDXJ, GLD and SLV are looking similarly bullish.

With so many commodity stocks rising, it is no surprise that the resource laden TSX entered a new bull market for the first time in 14 months:

Like an enormous pendulum, the long term trend takes a while to swing around and only tends to happen perhaps 5 to 10 times per decade.   Although the TSX is at about the same level it was 14 months ago, following this long term signal kept you out of this market, allowing you to capitalize on other, stronger, markets.

Lastly, over the past month, I've discovered some excellent trend following related websites (refer to my links section).  There are quite a few trend followers out there and there are a lot of people who have blogs, but there are not many people who are trend followers AND who blog about it, so it's always a pleasure when I stumble upon one.

Greek ETF, Natural Gas Show Strength

According to my written rules, I cannot add any new positions to my account.   I've got 7 positions open and a double short on VXX, which is the most risk that I can accept.  Therefore, I didn't run my scans this weekend, but I will post some major trend changes of note.

I go through about 200 ETFs each weekend and this newer ETF caught my eye this week.  Although the fund is still in a long term down trend, that could change soon if the short term trend continues:

Also, another ETF that is showing a lot of short-term strength is the natural gas ETF, UNG:

Any trend follower should have avoided buying this as the trend has been down for ages, losing 95% of its value since its high.   Personally, I would prefer never buying such an ETF, as I prefer to gain long exposure to a commodity by shorting an ultra short ETF.

There is an ultra short natural gas ETF, ticker symbol KOLD:

Chronic money losers such as VXX, ZSL, GLL, FAS, FAZ etc... will be be charted in black to indicate that they are short candidates only for me.   Just as two negatives equal a positive, shorting a short ETF means that one would benefit if the underlying commodity rose.