Last week I wrote about Tariffs and China and the fact that you can’t time the market. I will continue on that story today because the markets are still not participating very well if you are a holder or seller. If you are a buyer … you should be doing quite well.
I’ve titled this one “Tariffs and Children” because I am beginning to believe that is what we have running our country (and the stock markets) into the ground … children. More on that later … let’s take a look at a couple of charts I’ve put together using my Schwab Trading Platform.
Two day – minute by minute – Dow Jones Industrial Average (DJIA):
As you can see by the dark blue lines the index fell in early trading from a close yesterday of around 25,774 to an open today at about 25,658. It continued to fall throughout the day going as low as 25,332 but finally at the end of the day started to trend back up to around 25,490. As Charles Barkley of the Phoenix Suns used to say, “Michael Jordan and the Chicago Bulls did not beat us … the clock ran out so we were beat by the clock. Another five minutes and we would have beat them.” Yea Right! I don’t really know if Charles Barkley ever said that or not … but it fit with the story about the clock running out on the market today.
Is there anything that went up today? Here’s a selection of stocks/ETFs that I found (after the fact – which is easy to do) that went up from 9% to 27% today. All had volume of greater than 100,000 shares and all were priced at greater than $5 per share meaning it is not penny stock.
The problem here is that you would have had to been on the computer watching these and know what to buy and when to buy in order to make money with them. In other words … you would have wanted to become an instant and successful day trader … which is not very easy to do.
Day by Day – over the past one year:
For the past one year, we have pretty much had what I would call a “traders market.” A trader is a person who has no time limit on his/her stock purchases. They will buy when they think it is low and sell when they think it is high. They don’t “fall in love” with stocks and rarely hold them longer than a year … and some no longer than 4 to 8 weeks before getting out of them.
Look at this graph of the Dow Jones Industrial Average for the past one year:
A change of only 679 points over a one year period when you are talking about going from about 24,811 to 24,490 is only about a 2.73% change. Not much better than a bond or a bank with a heck of a lot more risk.
If this were a stock a “Trader” (not day trader) he/she would have bought in late May and sold in mid June. They would have bought again in early July and sold probably in Early October. They may have purchased again in late October and sold out in early November. They could have bought back in in late November and sold out in the first part of December. They would have definitely bought back in during the last week of December and may have held to early March. You get the point … they would be buying low and selling higher. They would never hit the ultimate low (no one ever does) and sell at the ultimate high (no one ever does) … but as long as they consistently sold for more than they purchased at … they would have done okay in this market period.
Here’s the same chart … but this time I have added green boxes where it would be a good time to buy and red boxes where it would be a good time to sell (keep in mind this is looking in hindsight and every one has 20/20 vision in the past):
I have also divided the index price by 1,000 to come up with a stock price. For example, if the index closed at say 24,360 on the day of the first buy … the stock price I used was $24.36. Here’s a table showing the these buy and sell prices and the amount of stock that was sold or purchased. Keep in mind for purposes of illustration I am calling this stock DJIX and I am rounding to 3 decimal points. In real life you could not purchase fractional shares and there is no DJIX that I know of:
As you can see in the table, the investor could have purchased the shares and held them for the entire year and still ended up with a 9% return or better … but by buying and selling the return end’s up being over 60%.
What would this investor be doing today? Probably as a trader … getting his “shopping list ready” to get back into the market when he/she feels it has bottomed.
Here’s a few facts to chew on before I get into the next part of this article:
- FACT: Most people will never live the lifestyle they truly desire.
- FACT: They don’t know how to grow their money properly.
- FACT: The problem may not be “contributions” but rather “rate of return.”
- It is hard to win a game if you don’t understand the rules or have to play at a disadvantage.
- Wall street and politicians want you earning single digit returns so that they can trade against you and pocket millions.
Why hasn’t the market done better over the past one year?
Last week as I told you … it was China Tariffs taking a toll on the market. This week it is not only China Tariffs but also politicians in America acting like children and bickering rather than taking care of business. Now on top of all of this we have Iran raising its ugly head wanting to entice us into another war. They should really be careful what they ask for.
Iran is easy. Simply spend a couple million on a few soldiers of fortune to take out the leaders in that country and bring it to its knees. We don’t need to send tens of thousands to do what a few good men or women could do. Cut the head off the snake and eventually the snake will quit crawling.
As for the politicians acting like children … not so easy. It’s been going on for too long now. Half the democratic party wants to impeach president Trump for no reason at all other than He is President. The other half wants to give away the farm and continue to run our debt sky high. Ninety percent of the republicans are so afraid to go against the democrats because they may “hurt their feelings” (which would be politically incorrect) or they are afraid they will be voted out of office next time around – so they run and hide and keep their mouths shut.
The only one (in my opinion) trying to do anything productive is Donald Trump and if he does not catch hell from the dems … he catches it from the media or the courts that continue to block things he is trying to do. Now the courts are telling him he has to turn over private financial documents for the past 10 years. For what? So someone can find something he may have done wrong and point the finger. Don’t finger pointers realize that when they point a finger to one person three fingers are pointing back at them?
I can certainly tell you the Dems have not learned this yet. They are surely doing a lot of finger pointing lately. Why aren’t the republicans investigating the Dems … after all they are not doing anything else. And, those political dems have plenty to hide.
Mark my words:
One day soon, Mr. Market is going to price all this “turmoil and chaos” into itself and will again begin to rise. Those who miss the entry point will probably kick themselves again for missing it. You need to watch the RSI (Relative Strength Index). This is one more market tool that can forcast direction. This is how it works per Investopedia:
The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100. The indicator was originally developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, New Concepts in Technical Trading Systems.
Traditional interpretation and usage of the RSI is that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.
This is what it would look like on a stock graph:
In this graph for Apple Computers (AAPL) we see the RSI is pretty close to 30 meaning the stock could be oversold and getting ready to move up in value. Look at when it went below 30 and above 70 in the past (lower part of graphic) and follow the price pattern in the upper part of the graph. You can get this added to any graph that you may pull up in Yahoo or your brokerage platform. All you have to do is click on technical analysis tools then RSI.
Now I have to work on my shopping list of stocks.
Thanks and good investing,
Jerry Nix, Freewavemaker, LLC
This information is not recommendations for you to purchase or sell any investments outlined in this article. The information is being shared for educational purposes only. I recommend that you seek the advice of a licensed and competent financial advisor before taking actions on your portfolio if you see a need to after reading this article.
The author of this article is long on the following investments outlined herein: AAPL