Why markets may be choppy for a while, and what you can do about it

I’ve posted this chart a few times in the past. Perhaps it’s worth revisiting  to see where we are in the money policy cycle of late. As you can see on the chart, the Fed’s murmurings surrounding the end of QE and low interest rates seems to have brought on a change in market trend since late 2014. This may not be so surprising, given that as each of the QE (Quantitative Easing) programs ended, the S&P500 moved into a period of choppy violent movements. Note the market’s reaction to the end of QE1, QE2, and the most recent choppiness coincident with the end of QE3 at the end of 2014.

Hmmmmmmm….

S&P QE ends

Given the potential choppy markets that the end of easy money seems to predict, and the rotational market that I’ve been harping about recently, it may be time to revisit my short termed trading strategy. I covered this system a while ago.  Here is the last blog on the system, with a chart on the system’s signals since October 2014.

 

Rules of the system

The systems rules are simple. At least 2 of the following signals must be met to initiate a trade of an S&P500-related security:

 

  1. A 10-day RSI hook up from the oversold line (buy), or an RSI hook down from the overbought line (sell).
  2. Stochastics hook up (buy) or hook down (sell) with a corresponding black fast-line movement through the red slow line.
  3. A test and recovery from the bottom Bollinger Band (buy) or decline from the top Bollinger Band (sell).

 

 

Below is a chart illustrating the recent positions of the system. As you will note, we received a “Buy” signal on Monday Nov. 16th as the lower BB was successfully tested and Stochastics hooked up with a positive crossover. RSI hooked up – although not from an official oversold level. Whatever the case- 2 of our signals (BB test and Stochastics signal) confirmed the trade. I added one new stock to our portfolio on that date.

S&P timing

 

 

7 Comments

    • Dave–first–thanks very much for noticing this. You are completely correct–I had been using the 10 day for the system–hadn’t revisited it since the spring when I sold out of the market, and made the incorrect failing memory assumption that I had been using the default 14-day RSI.
      So–my bad. I am editing this today.
      Again, thanks for pointing this out. to put it in Yoda talk (in honor of the coming Star Wars flick): “Embarrassed, I am”

      Reply
  • Hi Keith,
    Would you buy BCE with this bought deal offering? Do you think it will eventually get to $60 and possibly move higher than that? Thanks.

    John

    Reply
    • We still own it and like it.
      Given the $750MM size of the issue, and the $57 stock price, its not hugely dilutive. They are shoring up their balance sheet and taking advantage of a good share price with this deal–and the fact that its a bought deal (indicating lots of interest in the stock) its overall a neutral fundamental development according to ValueTrend’s resident fundamental analyst Craig Aucoin.
      We think its a $60+ stock, and are OK with the 4% + dividend meanwhile.

      Reply
  • Hi Keith, I always follow you on BNN. You rock!

    What do you think the of Boardwalk REIT? It looks undervalued, but the charts look really ugly.

    Derek.

    Reply
    • Derek–i try not to answer individual stock questions on this blog–lest I be inundated with such questions on everyone’s favorite stock (right now some 4000 readers/week look at this blog–wouldn’t want to talk to all of them about their stocks every week!). So– my BNN MarketCall appearances try to answer stock questions via the phone-in or emails from viewers. However–I do ask for suggestions on sectors that readers would like covered in this blog-and I think its high time for me to cover the REIT’s–look to next Monday’s blog to see a blog on that sector–thanks for the idea!

      Reply
      • Hi Keith,

        That would be great if you could cover the REIT sector. I think there would be a lot of interest for yield hunters. Looking forward to your thoughts.

        Congrats on the 4000 readers/week! That’s a big accomplishment.

        Derek.

        Reply

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