A Discounted View

Over the past few months money has rotated into the Consumer Discretionary sector (XLY) Exchange Traded Fund (ETF) at a faster rate than other sectors. In fact, since November of 2017 this sector rotation created a steep ascent in the price of XLY that garnered investors a gain of roughly +18%. While several of XLY’s largest constituents have experienced similar or greater gains over the same time period, certain holdings have lagged. For example, Expedia (EXPE) is displaying some  significant damage to its trend from a daily perspective. Short-term Chart After EXPE announced that it missed its earnings estimates at the end of October 2017, EXPE proceeded to gap lower by about -16% overnight. The  market immediately repriced the value of EXPE and since then the price has been attempting to find some footing. An uptrend during the former half of 2017 brought EXPE to just below 160 in late July. Over the following three months price pulled back and began forming wh

Since the Global Financial Crisis the US Federal Reserve has acted on an unprecedented scale in its monetary policy. Central bank run programs like Quantitative Easing and Operation Twist were utilized to artificially stimulate the US economy after the Great Recession. The objective for monetary actions, like Fed-open market purchases of bonds, was to drive interest rates lower as well as increase the amount of money available in the economy. While well-intentioned in its design, the latter may have consequences that are beginning to take effect in the value of the US Dollar (USD). That is, creating an excess of a currency in an economic system will eventually lead to inflation and in extreme cases hyperinflation and currency devaluation. Presently, we are experiencing an increase in rates of inflation throughout the US which has signaled the Fed to begin a cycle of raising interest rates . Accordingly, increasing interest rates is intended to help quell the rate of inflat

Interest rates play an integral role in the functioning of economies and markets. From a Keynesian monetary school of thought, the  increase or decrease in rates will either slow or drive economic activity, respectively. For example, when interest rates are low it is easier to fund pr ojects and expansionary plans with cheap credit. Conversely, as interest rates rise it will become less attractive to issue new debt at a higher rate to take on the same type of projects. Accordingly, assessing the current state of the interest rate market by looking at the US 10 Year Treasury Bond Yield Index (TNX) we can begin to see if changes in Fed policy from a dovish to hawkish stance are being reflected in the marketplace. Long-Term Perspective Looking at the monthly chart of TNX there are a few bullish developments . First, while TNX formed a lower low in 2016 after the its previous low in 2012 its Moving Average Convergence Divergence (MACD) formed a higher low at the s

On Thursday this past week Japan’s Tokyo based Nikkei Stock Index (NIKK)  broke out to new highs after repeated tests of resistance at 23,000 since November 2017. Since last fall, the buyers began to step in and bid up NIKK and its constituents more aggressively until it finally coiled between 22,750 and 23,000 before its breakout. The price action since November 2017 was clearly  constructive in setting up for a bullish breakout as each time price was sold lower the bids came in more quickly as the consolidation evolved. In addition to the strong price action NIKK printed an overbought reading on its daily Relative Strength Index (RSI). During an uptrend it is positive to see an overbought reading in RSI as this confirms the move in price. In other words, the expansion in price to new highs is being confirmed by RSI reaching the high of its range as well. RSI measures internal price strength and is a reliable tool for evaluating the validity of price behavior .

The allure of trading will attract many to take a shot at  becoming a professional in the craft but only those who truly love the process will ever succeed in the markets. In its simplest form, trading is a profession and like any other attempt to become a highly-skilled professional it will take time, discipline, and deliberate effort to accomplish profitability. Hard Work Malcolm Gladwell popularized the notion that it takes an individual roughly 10,000 hours of deliberate practice in order to become a master at a certain craft. Similarly, seasoned traders openly share the immense amount of screen time that is required to be put in over the years to become profitable . Simply put, trading takes hard work done consistently over many years. You must bring a blue collar mindset to your trading business by showing up each day for every trade, doing research, and putting forth your best effort routinely. Accumulating a lot of hours of screen time is a natural par

Over the past ten years I tried a variety of trading styles before eventually finding my niche. Throughout that time many mistakes were made during my development as a trader. Looking back on a decade of learning I can identify five key areas that I wish I understood better. For new traders, putting these principles to work now may expedite your path to consistent profitability. 1)      Spend more time studying your trades Studying your trades is simply one of the best ways to enhance your learning process. After collecting enough trade data to analyze your strategy  (typically, 50-100 trades), you will begin to see patterns in your decision making or in your automated system that may be limiting your upside potential. As a general rule, trader and system developer Perry Kaufman advises  the more data the better when analyzing a system. In effect, the Law of Large Numbers states that there will be less chance of randomness in your analysis when studying a large eno