The Gerritz Letter

The July issue of The Gerritz Letter has been published. It should be in your email inbox shortly. It can also be viewed at the GWM website.

Stephen

https://www.swiftpage4.com/speasapage.aspx?X=2W0U6K8PEAUCGZAB00Y9WW

Drop, Chop and Rock

Nasdaq Composite Chart Analysis

Drop, Chop & Rock

A Repeating Pattern?

Sell in May and Go Away
But Return in September

In the June issue of The Gerritz Letter, I eluded to the possibility that 2012 could look a lot like 2010 and 2011. The above 2010 to 2012 chart of the Nasdaq suggests that history may in fact repeat itself.

In the spring the market sells off (the drop). Then, it enters a volatile, trendless, up and down period (the chop) that lasts throughout the dog days of summer. Finally, in the fall, volatility subsides and the market stages a nice rally into the end of the year (the rock).

Thesis support:

Seasonality

The Presidential Election Cycle

In a recent blog post, I included the following Election Year chart analysis>

From a seasonality standpoint, markets generally

perform well in U.S Presidential Election Years.

The History

Election Year Returns

The action this coming week should tell a lot about the near term direction of the market. Will the market just continue to rise from here or will it turn south again to retest the June lows. History suggests that a retest in more likely.

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

Barrage of Bad News Trips Up the Market

Market Snapshot

The Bears win the day.

Market Direction Model

Wide spread institutional selling results in large declines
across all major markets

A barrage of bad news was the catalyst that drove the markets lower yesterday. Here's just a brief list of news items:

1. The housing market is slowing.

2. Manufacturing is slowing.

3. Job creation slowing.

4. Forthcoming downgrade of 15+ major banks

5. Goldman Sachs tells its client to short the market, expecting the S&P 500 to decline to 1285.

All this in the backdrop of a crumbling Euro Zone and Ben Bernanke's unwillingness to fire up the markets with a new round of quantitative easing simply proved to be too much for the markets to bare.

All sectors declined yesterday, with the cyclical and commodity sectors getting hit the hardest. There was really nowhere to hide except for cash and U.S. Gov. Treasuries.

I took evasive action yesterday by reducing risk exposure in all GWM Model Portfolios. After such a big sell off the markets should bounce for a few days, but our impulse indicators suggest lower prices are ahead.

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

Historic U.S. Presidential Election Year Returns

This Chart shows the average historical rate of return in U.S. Presidential  election years from 1928 to 2011 (red line). The year-to-date returns for the S&P 500 is represented by the blue line.


Will this pattern repeat itself? It looks pretty similar so far.

I think the current President will do anything he can to get re-elected in November, including juicing the economy. I would not be surprised to see this scenario play out. Time will tell.

Source: Bespoke

My Indicators Have Turned Bullish

In the face of all the bad news and negative headlines concerning the economy, the market has begun to rally. This, in and of itself, is a bullish sign. The following analysis provides further evidence that the major markets may have indeed bottomed and are heading higher.

You should be familiar by now with most of the charts I use to convey the message of the market. I have added a new one, the "Follow-Through-Day". An FTD, according to Investors Business Daily,  is an indicator that confirms a trend reversal and marks the possible beginning of a new rally.

Market Snapshot

The Bulls are back in control.

Trendline Analysis

The Nasdaq Composit Index

We have had an upside trend reversal.

Market Direction Model

Impulse Indicators                                    MDM

The MDM has turned Bullish.

The Woody Indicator

(Volatility Indicator $VIX)

Fear has subsided. We are once again in the Safe Zone.

Follow-Through-Day

on the Nasdaq Composite Index

Market in Confirmed Uptrend




A follow-through-day tells us that the current rally may have some legs.
It suggests that the current move up is more than a mere short covering rally.
It shows conviction on the part of the Large Players to
push the market higher.

The FTD indicator was created by William O'neal, founder of Investors Business Daily, long ago. While not quite as effective as it was in the 80s and 90s, it is still used by IBD to confirm a new uptrend.

* Follow-Through-Day rules:

1. The initial rally off a market bottom must not be violated to the downside  in subsequent days.

2. One of the major market indexes must rise, on higher volume than the day before, by at least 1.25% in a single day within 10 days of the market bottom.

Caveat:

Effective Volume Forum Leader and HGSI User Group member, Mike Scott, is an expert in the IBD investment methodology. His studies show that FTDs that occur in the month of June or July are much less reliable than FTDs that occur in other months.

Equity Sector Rotation

During the correction all GWM Model Portfolios have been primarily invested in the safe-haven defensive sectors, such as utilities (far right column). The Equity Sector chart above shows that money is now moving into the more beaten down sectors.

On Friday I reduced our holdings in the defensive sectors. Next week I will begin moving money into the sectors that are beginning to rebound.


If the market holds up well after Wednesday's FMOC meeting, we could be off to the races for the next few weeks. If we see weakness on Tuesday and Wednesday all bets are off.


I will be taking on new positions incrementally as events unfold.

Addendum:

Past Follow-Through-Days

The last FTD that fired was in November of 2011.  It definitely proved its effectiveness as a nice rally then ensued.

Not all FTDs are followed by strong rallies; but, all strong rallies start with FTDs.

(Click on the charts for easier viewing)

It just so happens that our Impulse Indicators fired on the same days, turning the MDM all green for a good bull run.

FTD

November 2011

Market Direction Model
November 2011

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

GWM Core Equities vs. The S&P 500 Index

Bulls fight back

GWM Core Equities

 vs.

The S&P 500 Index

Click to View

Our Core equities are performing much better than the market as a whole.

Performance comparison





GWM Core Equities

 Chart View

Click to view



What market correction?



This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

How GWM Prospects for Investment Opportunities

Top Down Investing

Gerritz Wealth Management employs the Top-Down Investment Management Style. What does that mean?

Simply put, we begin our investment prospecting process by first looking at the market as whole. Are we in a bull or bear market? 

We look to our Market Direction Model to help make that determination.

Market Direction Model

The market has been bearish as of late, but may now be turning more bullish.

Next, we identify the strongest sectors in the market. We do this by ranking the nine S&P Sectors based on relative strength.

Sector Rotation Analysis

The Utilities Sector is demonstrating good relative strength
when compared to the other eight S&P sectors.

We now know that the market has been a bit uncertain. We also can see that the defensive sectors, utilities in particular, are outperforming most of the other sectors. We are now ready to drill down and locate the best companies within the Utilities Sector.

Utility Sector Scan



I am looking for the best performing stocks that are attracting institutional money.
Consolidated Edison looks good. So does Southern Company.



We now want to boil the list down further by running these stocks through a screen that verifies both their fundamental and technical strength.  We are interested in their earnings rate, their relative strength and their industry group rank. (ERG)

Fundamental & Technical Screen





Is it time to buy though? We need to look at where the stock has been price-wise to get a better handle on where it may be going next. We need to look to the charts.

Chart Analysis

Southern Company

The stock looks like it is ready to resume its trend higher.

After a nice rise, the stock consolidated for more than seven weeks. It began to rise again; then pulled back briefly before breaking out to the upside. This chart is a picture perfect illustration of a stock that has formed what market technicians at Investor's Business Daily refer to as a cup with handle basing pattern. This is a bullish chart indeed.

As a result of our research, we were very comfortable adding both Southern company and Consolidated Edison to our GWM Model Portfolios.

GWM Core Equities Folio Holdings

as of 06 07 2012

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

It's Summertime and the Fed is'nt Easing

Market Direction Model



Impulse Indicator Buy Signal Negated





Trendline Analysis

Nasdaq Composite Index

60 Minute Chart
Each candlestick represents 60 minutes
Rally Fizzled



The day before Ben Bernankie's address to Congress on Thursday the headline news was:

Fed’s Janet Yellen calls for strong action to boost economy

The Federal Reserve’s second-most-powerful member is calling for aggressive action to boost the U.S. economy — hinting she might favor extending the Fed’s “Operation Twist” and launching a third round of so-called “quantitative easing.”

“I believe that a highly accommodative (Fed) policy will be needed for quite some time to help the economy mend,” Janet Yellen, vice chair of the Federal Reserve board of governors, said this evening in remarks to the Boston Economic Club. “I anticipate that significant headwinds will continue to restrain the pace of the recovery.”

The market was expecting Ben Bernankie to parrot these comments in his testimony to congress Thursday morning. That did not happen. The message was to the contrary. Bernankie stated that Fed accommodation (quatitative easing)  was not forthcoming at this time.

As you should know by now, the markets are addicted to Fed accommodation (printing money). Gold plunged, oil sold-off and the large player investors reversed course and proceeded to shave nearly 100 Dow points off the day's high to close up just 46 points.

The tone of the market has been dampened until the next market moving headline.

Addendum:

Friday Morning 06 08 2012

Our core equity defensive positions are doing well this morning.

GWM Core Equity

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.







Impulse Indicators Fired - Short-Term Buy Signal

Daily Market Snapshot

The Bulls Assert Themselves,
But DMS is Still Less than 50% Green.
We now need a follow through day.

Trendline Analysis

Chart View

S&P 1500 Composite Index

Nice Bounce Off the Bottom

Market Direction Model

           IMPULSE INDICATORS                         MDM                      

Buy Side Impulse Indicators Fired
(Lots of Blue Kahunas)

The Woody Indicator

(Volatility Indicator $VIX)



Market volatility dropped dramatically.
We are back in the Safe Zone.



The market remains in an intermediate downtrend. However the short-term trend has reversed to the upside. The market is being bouyed by hopes that the Federal Reserve Chariman, Ben Bernankie, will open the door for QE-3 (quantitative easing - code for print more money) during his congressional testimony Tuesday morning.

As I indicated in recent blog posts, we are positioned primarily in high dividend paying defensive issues. If the market has some follow-through Tuesday morning, I will add some more aggressive positions to the mix.

The market has been very oversold so I anticipated this bounce. Up-side follow through is essential to qualify this move as something more than a short-covering rally.

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

GWM Model Portfolio Holdings Report III

GWM Model Portfolio Holdings

GWM Inflation Hedges Folio Holdings

The Inflation Hedges folio is currently 100% invested in the Gold ETF (GLD).
 

 

Gold Price Chart

 

 

 

Gold ETF (GLD)

Performance Statistics

 

Gold has made a trend reversal after having corrected rather strongly.
Our entry seemed to be timely.

 

Trenline Analysis

Gold ETF (GLD) 

Breaking to the upside

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

GWM Model Portfolio Holdings Report II

GWM Model Portfolio Holdings

 Sector Rotation Folio Holdings

The Sector Rotation folio is currently 100% invested in the SPDR Utilities ETF (XLU)

Sector Relative Strength Comparison

(Click on charts for easier viewing.)



Utilities are currently the strongest and most stable S&P Sector



Utilities ETF (XLU) Yield

(Highlighted in Yellow)

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

GWM Model Portfolio Holdings Report

Due to the current market conditions, the very same high dividend/defensive positions now occupy both the New America Folio and the Discretionary Folio.

We are current 60% invested in both folios.

Holdings details, including dividend payouts.

Dividend yield is highlighted in yellow.

(Click on charts for easier viewing.)



Click the graph for readable view

  
 

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.

The Gerritz Letter

The Gerritz Letter has been published. It should be in your email inbox shortly. It is also available on the GWM web-site.

Stephen l. Gerritz, CFP

Market Snapshot 06 01 2012

(Click on charts for easier viewing.)
(Then click the large white X in the upper right corner to return to the blog)

 

Daily Market Snapshot

Market in Correction

Chart Analysis

Nasdaq Composite Index

Expect lower price ahead.

Market Direction Model

Our Impulse Indicators (the left side of the chart) represent
significant spikes in buying or selling
activity by market participants.

A cell painted blue represents a strong buying surge,
while a cell painted red represents
a strong selling surge.

Ian Woodword, the creator of the MDM, calls these impulse indicators Kahunas.
They come in two sizes, big and small.
Little Kahunas are either light blue or light red,
whereas Big Kahunas are dark blue and dark red.
The darker shades represent extreme levels of buying or selling.

You clearly can see how these impulse indicators set the tone for the market for many days to come.
Just look at the MDM (the right side of the chart).

On May 4th an entire row was painted with both red or dark red Impulse Indicators.
Notice that the MDM subsequently turned red, bearish, for a full two weeks.

The Woody Indicator

(Volatility Indicator $VIX)

Fear and Greed rule the market at extremes.
This is where the most money is made or lost in the market.


 The Woody Indicator is based on volatility and effectively
 measures and magnifies the emotions
of market participants.

Fear is generally accompanied by higher volatility.

The above analysis confirms what you have been hearing in the nightly news of late; the market is the midst of a full blown correction. The Dow Jones Industrial Average is now negative on the the year and the Nasdaq Composite Index has declined by a full 10% as of Friday's close.

Above I provided you with a little more indepth review of the inter-workings of our very effective Market Direction Model. I do this to help you gain at least a minimum understanding of the methodologies I employ and to hopefully help instill greater confidence in our processes.

Our Market Direction Model is Keeping us on the Right Side of the Market.

Our Impulse Indicators gave us a warning shot accross the bow in early May. This was my signal to begin reducing risk exposure in all GWM Model Portfolios. Going into yesterday's big decline all Model Portfolios were already positioned very defensively in high quality bonds, utilities (including phone companies) and lots of cash.

This blog post does not constitute an offer of investment advice. This blog is only provided for educational purposes. Please read the Important Blog Disclosure posted in the right channel bar.