Stocks drifted higher last week after suffering a sharp pullback. The question now is whether that pullback is over. Volatility Recedes As Stocks Inch Higher SPDR S&P 500 (NYSE: SPY) ended the week with a gain of 0.85%. The ETF is now 5.12% below its all-time high reached in May. Pullbacks of 5% to 10% have usually been considered normal in the stock market, but it seems that all declines since 2009 have… Read More

Stocks drifted higher last week after suffering a sharp pullback. The question now is whether that pullback is over. Volatility Recedes As Stocks Inch Higher SPDR S&P 500 (NYSE: SPY) ended the week with a gain of 0.85%. The ETF is now 5.12% below its all-time high reached in May. Pullbacks of 5% to 10% have usually been considered normal in the stock market, but it seems that all declines since 2009 have been accompanied by warnings that the end of the bull market is near. For a longer-term perspective, the monthly chart of SPY is shown below. This is the sixth significant decline since the bull market began in 2009. There is no way to know if any pullback will develop into a bear market. But we do know this market is very sensitive to the actions of the Federal Reserve. The latest sell-off was sparked by comments from Fed… Read More

Stocks drifted higher last week after suffering a sharp pullback. The question now is whether that pullback is over. Volatility Recedes As Stocks Inch Higher SPDR S&P 500 (NYSE: SPY) ended the week with a gain of 0.85%. The ETF is now 5.12% below its all-time high reached in May. Pullbacks of 5% to 10% have usually been considered normal in the stock market, but it seems that all declines since 2009 have… Read More

Stocks drifted higher last week after suffering a sharp pullback. The question now is whether that pullback is over. Volatility Recedes As Stocks Inch Higher SPDR S&P 500 (NYSE: SPY) ended the week with a gain of 0.85%. The ETF is now 5.12% below its all-time high reached in May. Pullbacks of 5% to 10% have usually been considered normal in the stock market, but it seems that all declines since 2009 have been accompanied by warnings that the end of the bull market is near. For a longer-term perspective, the monthly chart of SPY is shown below. This is the sixth significant decline since the bull market began in 2009. There is no way to know if any pullback will develop into a bear market. But we do know this market is very sensitive to the actions of the Federal Reserve. The latest sell-off was sparked by comments from Fed… Read More

Over the past year, economists have noticed an unusual pattern as they digested the series of monthly reports on housing, consumer confidence, purchasing managers, trade flows and other key economic inputs.#-ad_banner-# These reports showed consistently mixed signals, though it was clear that the U.S. economy was faring OK. And that has led to hopes of more consistently positive reports in the second half of 2013 and into 2014. By next year, many economists have come to expect a firmer backdrop, with… Read More

Over the past year, economists have noticed an unusual pattern as they digested the series of monthly reports on housing, consumer confidence, purchasing managers, trade flows and other key economic inputs.#-ad_banner-# These reports showed consistently mixed signals, though it was clear that the U.S. economy was faring OK. And that has led to hopes of more consistently positive reports in the second half of 2013 and into 2014. By next year, many economists have come to expect a firmer backdrop, with GDP perhaps growing in the 2.5% to 3% range. Yet it may be time to start questioning that brightening outlook. Perhaps the greatest measure of economic activity — one ignored by most investors, unfortunately — is flashing yellow and may soon be flashing red.  85 Inputs While many economic surveys aim to capture a slice of the U.S. economy, the Chicago Fed’s National Activity Index (CFNAI) looks at 85 different economic inputs focused on production,… Read More

Fundamental analysts generally focus on a company’s financial statement. They use tools like the price-to-earnings (P/E) ratio and dividend yields to find value. Many investors like to buy when these indicators are low. There are studies showing that this approach works in the long term. However, most of those studies could never be implemented by individual investors.#-ad_banner-# When studying P/E ratios or other fundamental measures of value, researchers generally divide the market into… Read More

Fundamental analysts generally focus on a company’s financial statement. They use tools like the price-to-earnings (P/E) ratio and dividend yields to find value. Many investors like to buy when these indicators are low. There are studies showing that this approach works in the long term. However, most of those studies could never be implemented by individual investors.#-ad_banner-# When studying P/E ratios or other fundamental measures of value, researchers generally divide the market into 10 groups. Each stock is assigned to one of those groups. Researchers then measure the performance of the group and usually find that the group with the lowest P/E ratio or the lowest dividend yield provides the best returns. There are at least 6,500 stocks being traded on U.S. exchanges. To duplicate a value strategy that is likely to outperform the market, you might need to buy 650 stocks. You could just select the stocks with the lowest ratios in… Read More

Fundamental analysts generally focus on a company’s financial statement. They use tools like the price-to-earnings (P/E) ratio and dividend yields to find value. Many investors like to buy when these indicators are low. There are studies showing that this approach works in the long term. However, most of those studies could never be implemented by individual investors.#-ad_banner-# When studying P/E ratios or other fundamental measures of value, researchers generally divide the market into… Read More

Fundamental analysts generally focus on a company’s financial statement. They use tools like the price-to-earnings (P/E) ratio and dividend yields to find value. Many investors like to buy when these indicators are low. There are studies showing that this approach works in the long term. However, most of those studies could never be implemented by individual investors.#-ad_banner-# When studying P/E ratios or other fundamental measures of value, researchers generally divide the market into 10 groups. Each stock is assigned to one of those groups. Researchers then measure the performance of the group and usually find that the group with the lowest P/E ratio or the lowest dividend yield provides the best returns. There are at least 6,500 stocks being traded on U.S. exchanges. To duplicate a value strategy that is likely to outperform the market, you might need to buy 650 stocks. You could just select the stocks with the lowest ratios in… Read More

In a paper titled “Value and Momentum Everywhere,” a team of researchers found that “value and momentum ubiquitously generate abnormal returns for individual stocks within several countries, across country equity indices, government bonds, currencies, and commodities.” This conclusion is so widely accepted that value and momentum are considered to be anomalies to the Efficient Market Hypothesis (EMH). Proponents of EMH believe markets efficiently price stocks using all available information. The strictest form… Read More

In a paper titled “Value and Momentum Everywhere,” a team of researchers found that “value and momentum ubiquitously generate abnormal returns for individual stocks within several countries, across country equity indices, government bonds, currencies, and commodities.” This conclusion is so widely accepted that value and momentum are considered to be anomalies to the Efficient Market Hypothesis (EMH). Proponents of EMH believe markets efficiently price stocks using all available information. The strictest form of the hypothesis says that no individual could beat the market because each stock is trading at exactly the right price at all times. #-ad_banner-# However, researchers have repeatedly demonstrated that investors can beat the market by applying value and momentum strategies. We believe that volatility can also be used to outperform a buy-and-hold strategy. Recently, we introduced the Income Trader Volatility (ITV) indicator and provided test results showing that… Read More

In a paper titled “Value and Momentum Everywhere,” a team of researchers found that “value and momentum ubiquitously generate abnormal returns for individual stocks within several countries, across country equity indices, government bonds, currencies, and commodities.” This conclusion is so widely accepted that value and momentum are considered to be anomalies to the Efficient Market Hypothesis (EMH). Proponents of EMH believe markets efficiently price stocks using all available information. The strictest form… Read More

In a paper titled “Value and Momentum Everywhere,” a team of researchers found that “value and momentum ubiquitously generate abnormal returns for individual stocks within several countries, across country equity indices, government bonds, currencies, and commodities.” This conclusion is so widely accepted that value and momentum are considered to be anomalies to the Efficient Market Hypothesis (EMH). Proponents of EMH believe markets efficiently price stocks using all available information. The strictest form of the hypothesis says that no individual could beat the market because each stock is trading at exactly the right price at all times. #-ad_banner-# However, researchers have repeatedly demonstrated that investors can beat the market by applying value and momentum strategies. We believe that volatility can also be used to outperform a buy-and-hold strategy. Recently, we introduced the Income Trader Volatility (ITV) indicator and provided test results showing that… Read More

Mutual funds are one of the great success stories in the history of financial services. In 1970, just 360 funds existed in the United States, with assets under management at $48 billion. By the end of 2011, there were more than 14,000 mutual funds — with assets of $13 trillion. Thanks to these funds, new classes of investors could access the market, and the financial services industry enjoyed huge gains. #-ad_banner-# But now, after decades of… Read More

Mutual funds are one of the great success stories in the history of financial services. In 1970, just 360 funds existed in the United States, with assets under management at $48 billion. By the end of 2011, there were more than 14,000 mutual funds — with assets of $13 trillion. Thanks to these funds, new classes of investors could access the market, and the financial services industry enjoyed huge gains. #-ad_banner-# But now, after decades of growth, the mutual fund industry is under attack. With bloated fee structures, insufficient transparency, ongoing conflicts of interest, and years of underperformance, the mutual fund industry is experiencing a tidal wave of capital outflows. Domestic equity funds lost $154 billion in assets in 2012 — the fifth consecutive year the industry has had a net outflow. What’s driving the shift away from mutual funds? Exchange-traded… Read More

Are you looking to buy a new car? Don’t pay cash.  A 48-month loan for a new car is currently just 2.58%, according to Bankrate.com. That’s below the historical rate of inflation (going back over the past half century). By the time your loan is paid off in four years, the inflation rate could exceed that 2.58% rate, meaning your real borrowing costs would actually be less than zero percent.#-ad_banner-# But don’t wait too long. Interest rates have begun… Read More

Are you looking to buy a new car? Don’t pay cash.  A 48-month loan for a new car is currently just 2.58%, according to Bankrate.com. That’s below the historical rate of inflation (going back over the past half century). By the time your loan is paid off in four years, the inflation rate could exceed that 2.58% rate, meaning your real borrowing costs would actually be less than zero percent.#-ad_banner-# But don’t wait too long. Interest rates have begun to rebound and are expected to rise gradually higher over the next few years. That auto loan rate will likely be closer to 5% in a few years.  In fact, this issue is probably being discussed in boardrooms at the top auto companies and just about any firm that relies on low-cost loans to spur demand. Corporate executives realize that consumer confidence and spending trends remain challenged, even with the aid of low interest rates. Read More

Every profession has its buzzwords to create the illusion that things are more complex than they really are. Everything from the Latin terms used by medical doctors to the chatter of gearheads talking about the latest car engine, simple concepts are often clothed in complicated-sounding terms.#-ad_banner-# Investing professionals are no different in their use of complicated nomenclature to describe simple things and ideas.  I know I was intimidated when I first heard the term statistical… Read More

Every profession has its buzzwords to create the illusion that things are more complex than they really are. Everything from the Latin terms used by medical doctors to the chatter of gearheads talking about the latest car engine, simple concepts are often clothed in complicated-sounding terms.#-ad_banner-# Investing professionals are no different in their use of complicated nomenclature to describe simple things and ideas.  I know I was intimidated when I first heard the term statistical arbitrage. To me, it sounded like I would need a math Ph.D. or at least an advanced understanding of statistical theory to figure out what it meant. Not being an advanced math person, I was fortunate to have had a trading mentor who patiently explained to me what statistical arbitrage is and how to use it profitably.  Ever since I was made aware of this unique and profitable trading technique, I have used it in a variety of market conditions to capture profits that would otherwise be unavailable. This method’s not for… Read More