1 2 If you watch any one of the business news channels for more than an hour a week, you are likely to hear an expert proclaim that investors are moving money in or out of particular sectors. They might say “money is flowing out of financials and into gold mining stocks” for example. While it seems statements like this require actual knowledge of what other investors are thinking, that really isn’t the case. Sometimes the comments are based on observations of money flow indicators and other times they might be based on a theoretical sector rotation model like the one shown below. This mod...

1 2 I saw an interesting chart over the weekend and want to share it with you so I recreated it. There are Bollinger Bands, moving averages, trend lines, stochastics, RSI and MACD. I think the chart is saying to buy but it’s not easy to tell. This chart is clearly an example of too many indicators. In fact, all three of the indicators at the bottom use the same information and will almost always give the same signals. We can confirm that with another chart. In the chart above, all three indicators have been scaled to show the same range. They all generally move in the same direction at...

1 2 A little more than 17 million voters in Great Britain created turmoil in global markets when they voted to leave the European Union. According to analysts at Standard & Poor’s, the vote led to $2 trillion in losses for investors around the world. These short-term losses reminded investors that markets are always volatile. Volatility is also defined as risk and is often explained in academic terms. From an investor’s perspective, stripping away the academic jargon, risk is the  amount of money you can lose on an investment. Risk is unavoidable and arguably risks are highest for pas...

1 2 Traders are usually focused on maximizing profits and moving averages (MAs) are one of the tools some traders use to meet that goal. An MA is applied to smooth price data and help to identify the trend. One of the earliest references to this strategy can be found in the classic technical analysis text book, Technical Analysis of Stock Trends by Robert Edwards and John Magee. In the first edition of their book, in 1948, they wrote: And, it was back in 1941 that we delightedly made the discovery (though many others had made it before) that by averaging the data for a stated number of da...

1 2 Income investing is often thought of as conservative. Because they are focused on income, income investors might try to minimize risk. Some do this by limiting their investments to blue chip stocks like the ones in the Dow Jones Industrial Average or other large stocks. In the current stock market trading, this strategy might work well if you have enough wealth to generate adequate income from blue chip stocks. With the current yield on the Dow at about 2.3%, a $1 million investment will generate income of almost $2,000 a month. High quality bonds offer about the same yields right now...

1 2 Income investors face two challenges in the current environment – they need to combine high income with safety. Neither challenge is easy in the current environment. With the Federal Reserve holding short-term rates below 0.5% since 2009, the challenge of finding income has left many investors with more risk than they are comfortable holding. One example of this is master limited partnerships (MLPs), an asset class that promised high income but carried hidden risks. The chart below shows Alerian MLP ETF (NYSE: AMLP), an ETF that tracks an MLP index. These were actually investments in the...

1 2 Relative strength (RS) is widely followed by professional investors. Their interest in RS is simple to understand – their job is to beat the market and the stocks with the highest RS are the ones beating the market. Professional investment managers cannot do their job without owning high RS stocks. Using strategies that include RS helps them meet their goal. Despite its widespread acceptance among market professionals, individual investors rarely follow RS. Again, their interest level is simple to understand – RS is difficult to find for individual investors. In the past, this indicat...

1 2 Last week, I wrote about how CNBC’s guests love to talk about divergences. This week, I want to look into another one of their favorite talking points – chart patterns. After this article I will move on from my critique of CNBC for at least a while. You’ve probably seen guests explain how a head and shoulders pattern or falling wedge is forming and state that this has predictable implications for the stock market. These patterns do exist and are widely followed, but they are generally subjective. I generally prefer objective analysis which is based on numbers and formulas that can be ...

1 2 How does it feel be wealthy?  While you may just be average or even on a lower rung of the economic ladder when compared to your neighbors, truth is, you are wealthy. In fact, the typical person in the bottom 5% of the U.S. income distribution curve is still wealthier than 68% of the world's population, per the New York Times.  Think about that for a minute! I can hear many you asking what this has to do with the topic of the article? It drives home the point that everything is relative.  This means that nearly everything in life can only be judged in relation to something else....