June 10, 2013

Logical Market Update: Dividend Momentum Trade – Dead or On Hold – Money Rotation Continues – Where Might Surprise You

Dividend Momentum Trade – Dead or On Hold  – Money Rotation Continues – Where Might Surprise You

As I listen and read the media report on “recovery” or lack thereof – of an improving economy or lack thereof.  The conversation usually falls back to Fed Chairman Bernanke having solved the problems and not just within the borders of the U.S.A, but globally. 


Let’s face some bitter facts here – stocks and real estate have zipped right back to lofty heights not seen in over six years. The S&P 500 is up 28% in the last 2 years, home prices have risen an average of 10% since last year.   The Bond market did manage to pull off an exceptional rally, however getting caught up in its own hype and has brought higher yields and prices tumbling back down (153 to 138 – may not seem like much to some – but trust me if you have been long bonds you are in a deep state of hurt.)


The markets have been going up and are likely to continue to go up as the wave of cheap credit and central bank printing continues.  Some call it QE – others stimulus – and I have seen the word “experiment” tossed about a few times.  No matter what your word of choice is this phase will end badly.  I fully expect a total market melt down (making 2008) look like the childs play.  But keep in mind asset prices can and have in the past risen for years and reached heights that would never have been tossed around in conversation.  All this is likely still yet to come.  In fact, we may well be at an important juncture of a “new phase” of the bull run. 


Whether I agree or not the markets believe that Bernanke has solved the world’s problems.  I live in San Francisco and as I look out my window, which has a view down Market Street to San Francisco Bay – I can count over 12 giant construction cranes swinging and moving each day.  Private employment and manufacturing are on the mend and improving.  Bond yields are rising (prices falling) as the market expects a stronger economy will ultimately raise demand for credit. 


Money Rotation Continues:


In late 2011 into early 2012 the big rotation was into safe dividend-paying blue chip companies, such as Wal-Mart, Johnson & Johnsons, Proctor & Gamble and others.  The play paid handsomely with JNJ rising $23, P&G $17 and WMT reaching $80 after gaining $22.  So, these high paying dividend stocks provided a nice bonus of upward momentum to produce what some call the Dividend Momentum trade. 


But over the past several weeks I’ve notices some strong rotations taking place.  One I mentioned several weeks back was the rotation out of Biotech and back into Technology as a more sector rotational play.  Take a look at the charts below (courtesy of Prophet Charts © 2013)

The first one below shows Goldman Sachs (white) against Ford (green) and Wal-Mart (blue) the period is May 1 to the present.  F is keeping pace with GS with regards to % gains while the defensive blue chip suffer negative gains. 




The second chart pairs Proctor & Gamble (white), Morgan Stanley (blue) and American Express (green).  Again, the rotation is clear.  Financials have been hot to trot – again the perception is that credit demand will increase –



Also, bear in mind the rotation also carries the possibility that some market psychology is also changing as it signals an increasing interest in companies that benefit from economic expansion. 

So, even as the pundits continue to rant and rave about the inevitability of the markets to come to a crashing finish this particular money rotation signals investors and thus the market is a bit more comfortable with the idea that Mr. Bernanke has a clearer vision towards that fix albeit temporary or not. 


My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allow DTS to cleanly and beautifully captured the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.


Diversified Trading System


I continue to recommend as the best trading platform available to a broader range of traders from novice to expert.  The Diversified Trading System offers a cost effective product that allows a trader to enter into the “chaos” and trade more effectively.  


Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility.  Automated stop-loss management and position sizing eliminates most of the problems most individual traders have.  Day trading and position trading both require (actually demand) good risk management.  Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades. 


A newer member of the money management tools available from Indicator Warehouse is the Profit Finder – System Back Tester When implemented it allows the user to:

  • Immediately know the impact of parameter changes. 
  • Automatically reads all of your DTS entries and exits
  • Calculates the profit/loss of each trade
  • Performs a wide number of essential intelligence boosting calculations instantly
  • Provides solid details about the effectiveness of your trading strategy/ methodology/ indicators


The last two points above are valuable tools to use.  It will show you where some “tweaking” is needed to improve results through the back testing feature. 



The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in the DJIA, YM (mini), S&P 500, ES (mini), RUT, TF (Russell 2000 mini), AAPL, AMZN, GOOG, NFLX, and LNKD, GS, and Tesla Motors (TSLA).    


Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:

  • DJIA future (e-mini available) – Highly recommended
  • S&P-500 future (e-mini available) – highly recommended
  • Russell 2000 future (e-mini available) – highly recommended
  • NASDAQ 100 future (e-mini available) very highly recommended
  • US$/Euro futures (e-mini available) – very highly recommended
  • GS (Goldman Sachs) – good two way volume –
  • AAPL (Apple Computer) – very highly recommended
  • GOOG (Google) – very highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended  
  • 30-yr Treasury Bond future – did not get quiet – opposite took place
  • 10-yr Treasury Note future
  • TLT (Treasury Bond Long ETF)
  • TBT (Treasury Bond Short ETF)
  • Gold (futures and ETF – GLD)
  • Silver (futures and ETF – SLV)