The Tasgall Group

Time to check in with our density theory again.? Today was significant because the S&P 500 reached the top of the value range it has been trading in for a while, pierced it and then faded back down.? So what does the density concept tell us is the most likely event?? Probably a return to the middle of the bell curve that prices have painted recently.? This is around 1256.? The most popular price recently however is more around 1270 and could provide early support or a launching pad if the bulls can win.

What today has done is bring us to an inflection point.? Price has already made many moves back and forth across the face of the bell curve so it may be getting exhausted and need a breakout to new value.? It seems likely that the market will wait for Bernanke first though.? My personal feeling (not worth much) is that a raise is more likely than people think and, even if it isn’t, the pause concept is probably already priced in.? That would lend some credit to the idea that it might return to “center ice” to await the announcement.? I would venture to guess that uncertainty leads to a retreat to old value while certainty leads to a move to new value.? So I’d assign a good probability right now to a move down to 1256 or so.? If it is to do that by the time of the Fed announcement though it would require a pretty quick drop.? That’s why 1270 may be a better catch-all goal and would be perfectly reachable by the FOMC meeting.? Either way, down is the word because old value is currently below the market.

If price does break up to new value, that is probably going to be around 1306.? A break of today’s high would be a pretty bold statement and should mean the bell is finally broken or at least expanding upwards.

Now we can only wait and see…

I commented a while back on the fact that we need more asset classes when defining our asset allocations. A lot of people think that it’s enough just to divide your investments between stocks and bonds. I think the world has come a long way since the original research was done when those were the only two classes of investment.

I’d include the following asset classes in my allocation strategies:

• US Stocks
• US Bonds
• International Stocks
• Inetrnational Bonds
• Real Estate or REITs
• Commodities
• Gold and Precious Metals
• Timber
• Cash

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Well, on Monday I started trading the Uberman’s Portfolio with real money.? The yield is 10.99% at the current leverage.? I made this move after a month of forward trading (24/7 exposure)?and then completing 3 years of backtesting.? They both confirmed the theory that the porfolio does indeed stay tied to the “index” of the interest rate yield.? Random indexes of currencies did not do this.? This has given me the confidence (and data for position sizing) I need to dip my toe in the water.

Hopefully, this will be exactly what I meant about having an approach that allows you to benchmark your performance.?? By knowing that the portfolio is mathmatically driven to “stay in the lines” as best as possible and the road is mapped out ahead of time (the yield), then I have more confidence about the results and what they mean.? If after a year the return is close to the yield and walked the line the whole way, I can be reasonably sure?that the results were not luck but a result of the model at work.? I know that theory by confirmation isn’t the best form of proof, but in trading that may be all we get.

In case you guys haven’t heard about them, Everbank has some interesting CDs available under the names MarketSafe, MetalsSelect, and WorldCurrency.

The theory is that you buy their special CDs and Everbank, and you get a 3 year CD that is tied to the performance of an index. If the index ends the 3 years below a pre-set threshhold, you get your principal back. If the index ends above the threshhold, you get your principal back plus some percentage return based on how much the index was over the threshhold.

The CDs includes indexes based on the price of Gold, Commodities, Oil, currencies (Euro, India, Iceland, Hong Kong, etc.). I think the offering for several of the CDs expires August 22, so if you’re interested do your homework quickly. (more…)

We spend a good amount of time discussing interest rates, but there are a few different ways to look at them…

One way is the yeild curve. It looks at the current rates across many maturities right now, and many people are watching it to see if/how much it becomes inverted. There is even a web page that will calculate the probability of a recession based on the Federal Reserve’s research. (Current answer: 35%) And, of course, there’s the animated version of the yield curve.

We can also look at the yield spread ($TYX:$IRX) which compares the 30 year rate treasury bond rate and the 3 month treasury bill rate over time. (You can use the 1 month yeild ($UST1M), 1 year ($UST1Y) 5 year ($FVX), 10 year ($TNX), 30 year ($TYX), or any other yield you might want.)

As long as the line is dropping, liquidity is contracting. The line should start to rise when the FOMC starts trying to ease again, or if 30 year rates were to shoot up (bond prices would fall). This would indicate that liquidity was expanding.

We can attach a simple moving average to the chart (which StockCharts does automatically) to try and identify when a trend change is underway. This is one of the charts I regularly review to keep the concept in my mind that we haven’t seen the spreads start to widen yet.

For those who enjoy learning tips about squeezing every last drop out of your net worth growth, this blog, My 1st Million At?33,?is dedicated to that very goal.? Lots of excellent tips and argument/counter-argument dicussions about matters that affect the bottom line.? I like the analytical approach to “gaming” the system of personal finance.? It just so happens that he just posted a summary of his site for newcomers.? Of particular interest was the link on housing but it’s all good stuff.

You’ve probably heard something like this floating around before,

Fed Funds Futures are currently pricing in about a 36% chance for a 25 basis point Fed Funds rate hike next week to 5.5%.

Ever wondered what they mean by that and how they get that number?? Well here is an explanation by the Fed themselves.

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Decision Point.com has a good serivce and provides a perspective on the implications of retail money flowing into and out of mutual funds.

The idea is that the people who move money into and out of mutual funds frequently are doing so due to emotional reasons. Specifically, when a market is doing well, they chase the market and the buying climaxes as the price action is nearing a peak… and when prices are going down, sellers panic and sell en masse as the price action is nearing a trough.

They have some free commentary that is worth reading and reviewing… the good stuff requires a $19.95 monthly subscription.