Commission Free ETF Portfolios Monthly Update

I track 3 “commission free” ETF portfolios on the right hand side of Scott’s Investments. Not all of the ETFs are truly commission free but I did my best to include as many as possible in each portfolio depending on what is available from each broker.  The brokers highlighted are TD Ameritrade, Vanguard, and Fidelity.


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For the full strategy background, click here.  Investors can use the monthly moving average to determine when to invest in the index or ETF. When the ETF is above a moving average, invest in the position. When it is below its moving average, sell the position and hold cash.   The objective is to participate in the index or ETF when the long-term trend is positive, and avoid the index when the trend is negative.  Mebane Faber has shown in his The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets how this strategy has historically done a good job of reducing portfolio drawdown and volatility.  

The signals update daily (as opposed to just at the end of the month).  Thus, it is possible to get “whipsaws”, where an ETF make cross above and below the moving average on a frequent basis. I typically write an update near the end of the month but it is up to each individual on how to use the data, how frequently to check the signals, and which system works best for you.  
 
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Currently, the bond ETFs TIP, BND, and AGG are above their 10 month moving average.  The Vanguard REIT Index ETF (VNQ) is also above its 10 month moving average.   The full  signals are below, as of October 28th.   All other ETFs in the portfolios remain below their 10 month SMA. However, with a strong equity rally in October many ETFs are much closer to their 10 month SMA than they were in September.

Please note the data source is Yahoo Finance and I use the dividend adjusted closing price to calculate the moving average. It is possible to get different signals if using unadjusted closing prices to calculate moving averages.


TD AMERITRADE
Symbol Name Position (determined by current 10 month SMA)
DJP iPath DJ-UBS Commodity Index TR ETN Cash
DBC PowerShares DB Commodity Index Tracking Cash
RWX SPDR DJ International Real Estate ETF Cash
VNQ Vanguard REIT Index ETF Invested
TIP iShares Barclays TIPS Bond Invested
BND Vanguard Total Bond Market ETF Invested
VWO Vanguard Emerging Markets Stock ETF Cash
VEU Vanguard FTSE All-World ex-US ETF Cash
VB Vanguard Small Cap ETF Cash
VTI Vanguard Total Stock Market ETF Cash


VANGUARD
Symbol Name Position (determined by current 10 month SMA)
DBA* PowerShares DB Agricultural Commodities Cash
DBC* PowerShares DB Commodity Index Tracking Cash
VNQI Global ex-U.S. Real Estate Cash
VNQ Vanguard REIT Index ETF Invested
TIP* iShares Barclays TIPS Bond Invested
BND Vanguard Total Bond Market ETF Invested
VWO Vanguard Emerging Markets Stock ETF Cash
VEU Vanguard FTSE All-World ex-US ETF Cash
VB Vanguard Small Cap ETF Cash
VTI Vanguard Total Stock Market ETF Cash

FIDELITY
Symbol Name Position (determined by current 10 month SMA)
DBA* PowerShares DB Agricultural Commodities Cash
DBC* PowerShares DB Commodity Index Tracking Cash
VNQI* Global ex-U.S. Real Estate Cash
IYR Dow Jones US Real Estate Cash
TIP iShares Barclays TIPS Bond Invested
AGG Barclays Aggregate Bond Invested
EEM MSCI Emerging Markets Cash
EFA MSCI EAFE Cash
IWM Russell 2000 Cash
IWB Russell 1000 Cash

*commissions may apply

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

The Unfortunate Truth About an Overbought Stock Market

JW Jones just posted a new article The Unfortunate Truth About an Overbought Stock Market. Below is an excerpt, the full article can be read for free on his site:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Weekend Readings

Below are some readings for this weekend:

How Well Does Bankruptcy Work When Large Financial Firms Fail? Some Lessons from Lehman Brothers – Cleveland Fed, via The Big Picture

Ray Dalio’s Radical Truth – Institutional Investor

DeMark Says S&P 500 May ‘Trap’ Bulls After Rally – Bloomberg

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How Not to Seek Dividend Income – Mark Hulbert

Is Modern Central Banking Ancient History? Manoj Pradhan via The Big Picture

Winter is Right Around the Corner – Macrotides via The Big Picture

Europe Steps Up to the Plate – Bill Witherell, Cumberland Advisors

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

11 Low PEG, High Momentum Stocks

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Each month I update a fundamental/technical screen at Scott’s Investments and track the results real-time. September’s list of 7 stocks is here and the screen returned 1.83%, under-performing SPY which returned 5.54%.   The screen is not intended as a comprehensive portfolio, but a list for further research, and proper risk management techniques should always be considered.

The screen looks for the following:

  • earnings growers still reasonably priced as judged by the PEG ratio 
  • low debt 
  • a history of high return on equity and investment, and 
  • price momentum as gauged by the percentage the stock is trading to its 250 day high. 
  • The stocks are then ranked based on fundamental factors as compiled by stockscreen123.
Apple (AAPL) remains on this month’s list, ranked fifth overall.  The company sports a return on equity and return on investment over 30%.  Its long-term PEG ratio is .53, suggesting its growth is undervalued based on historical earnings growth rates.  It also has no debt. 
Below is the entire list of stocks meeting the screen criteria:
Ticker Name Rank MktCap PEGLT Options Report
LECO Lincoln Electric Holdings, Inc. 96.21 2955.6 0.86 Here
TRLG True Religion Apparel, Inc. 95.21 802.35 0.85 Here
BIRT Actuate Corporation 94.97 288.29 0.65 Here
JOSB Jos. A. Bank Clothiers, Inc. 94.76 1449.55 0.99 Here
AAPL Apple Inc. 92.78 369638.5 0.53 Here
NSR Neustar, Inc 88.67 2256.38 0.93 Here
GOOG Google Inc. 79.96 188295.2 0.84 Here
QCOR Questcor Pharmaceuticals, Inc. 77.05 2075.18 0.93 Here
SYNA Synaptics, Incorporated 68.57 1047.33 0.9 Here
CKSW ClickSoftware Technologies Ltd. 57.38 300.52 0.56 Here
DECK Deckers Outdoor Corporation 50.12 4055.01 0.95 Here

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

ECRI’s Recession Call: Market Crash To Follow?

I have just posted an exclusive article on Seeking Alpha titled  ECRI’s Recession Call: Market Crash To Follow?  I note how ECRI’s previous recession calls correlated with stock market moves and also discuss current ETF Replay Portfolio holdings.

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

SPY Technical Analysis

US equity markets have rallied nicely in the midst of earnings season. I stated recently the equity markets do not excite me from a fundamental perspective.  However, it is difficult to trade and time a market based on fundamentals, which tend to hold more sway over longer time frames. In the short-term, I remind myself to keep an open mind and watch the technicals and relative strength.

SPY (SPDR S&P 500 ETF)  recently broke through a key resistance level in the $122-$123 range. However, I see some additional, significant hurdles in the coming days for SPY.

Below is the full chart, with several indicators that may look a bit jumbled, but I will break them down individually below:

I removed all fibonacci retracements from the chart above. What we are left with is a daily chart of SPY with two price levels showing support and resistance (in red), and the 50 and 200 day moving average (in blue).  The price level around $125.50 is a former support level that could act as resistance in coming days. In addition, the 200 day simple moving average is at $127.62 and could act as a potential resistance level:

Next, the support/resistance levels and moving averages from above are removed and fibonacci retracement levels are added.

The weekly chart shows the fibonacci retracement levels from the 2009 low to the highs from earlier this year.  The 38.2% level acted as support on two occasions this past summer.  The 23.6% level was broken last week and could now act as support.

Finally, on a daily chart we see the retracement levels from the highs in May to the lows in early October.  The 50% level was a key resistance level and was broken last week, so it could now act as support. However, the 61.8% level is at $125.82 and may act as resistance in the near term.

SPY hit a high of $125.80 today, it is amazing to see fibonacci in action when the 61.8% retracement level resides just $.02 from today’s high:

In the long-term I am uneasy about the market fundamentals. In the short-term, these are some of the price levels to watch for clues as to where SPY may head.

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Monday Night Readings

Below are a few articles I’m reading early this week:

How to Trade Gold and Oil Prices this Coming Week – Chris Vermeulen

The Eurozone Wags the Gold and Silver Dog – JW Jones

McClellan Oscillator Confirms New Uptrend – Tom McClellan

Penny Wise and Euro Foolish – John Hussman

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Do Bullish Investors Have an Ace in the Hole? Frank Holmes via Investment Postcards from Cape Town

Tactical Shift in Portfolios: Reducing Cash – Barry Ritholtz

The Only Way to Save the Economy: Break Up the Giant, Insolvent Banks – Washington Blog via The Big Picture

Video: Financial Alchemy and the Breakdown of Faith in Financial Markets – Satyajit Das

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Updated Dividend Champion Rankings

Two weeks ago I featured some new analysis on Dividend Champions in which I ranked the Dividend Champions based on volatility, momentum, and risk-adjusted returns.  Over the past decade lower volatility stocks in the S&P 500 have outperformed the index as a whole.  There is no guarantee this out-performance will continue and could be affected by market cycles.  A bear market tends to favor lower volatility stocks while a bull market favors higher beta/growth stocks.

I think the secular equity bear market we are currently in could continue for several more years, thus, lower volatility dividend stocks may offer some protection while still providing equity exposure.  I am looking for feedback regarding this spreadsheet and the ranking highlighted below – are you interested in seeing the rankings published and tracked?  If so, how frequently would you want to see them updated?

Using a custom excel spreadsheet containing price data for the current Dividend Champions, I began by calculating the historical volatility over the past 63, 126, and 252 trading days of each Dividend Champion. I chose these days to correspond closely to 3, 6, and 12 month time frame.  These may be unorthodox time frames, but the goal is to identify stocks with lower volatility over longer time periods and to smooth volatility percentages over multiple time frames.

I then averaged the three volatility numbers and used these values to assign a volatility rank to each Dividend Champion.  The higher the rank, the lower average historical volatility over 63, 126, and 252 days.

Below are the 10 lowest volatility Dividend Champions using this method:


Symbol Avg Volatility
KMB 15.98%
PG 16.06%
MO 18.91%
WMT 19.11%
ED 19.55%
T 19.81%
PEP 20.66%
ABT 20.96%
JNJ 21.09%
MCD 21.72%










Next, I took the return data for the current Dividend Champion lists and averaged the dividend adjusted returns over the past 63, 126, and 252 trading days and assigned a rank to each stock. The higher the ranking, the higher the stock’s momentum has been over the average of the past 63, 126, and 252 trading days.  The 10 highest returning stocks are below (note: HGIC has agreed to be acquired by Nationwide):




Symbol Momentum Ranking
HGIC 101
VFC 100
RAVN 99
RLI 98
GWW 97
FDO 96
ED 95
CL 94
MCD 93
STR 92





Finally, I calculated the risk-adjusted returns (calculated as the returns divided by the historical volatility) for each Dividend Champion over the past 63, 126, and 252 trading days.  These three values were then averaged and each stock was assigned a risk-adjusted return ranking.  The higher the historical risk-adjusted return, the higher the ranking.  I consider this my “overall” rank for each stock and is similar to a sharpe ratio calculation.  


Below are the top 10 Dividend Champions using this method:


Symbol
ED
VFC
KMB
MCD
CL
RLI
HGIC
GWW
MO
STR



The top 10 stocks based on an “overall” ranking from two weeks ago are listed below and contains several of the same names as this week:


Symbol
VFC
ED
MCD
HGIC
RLI
CL
KMB
MO
HRL
LANC

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Gold: Don’t Change the Channel

I believe there are two simple indicators to watch on gold (GLD) for projecting it’s next long-term move.  The first indicator has been highly predictable since late 2007.  It is the upward channel that gold has traded in for almost the entire period since 2007, with one recent exception.  When gold went “parabolic” in August, it traded outside the bounds of this channel.

Gold subsequently sold-off as hard as it went up, falling back within the channel and now appears neatly contained within it.  In early September, with GLD at $181.81 we, along with Dave Banister of Market Trend Forecasts, noted the probability of a pullback in price.

The first chart below is the weekly chart, showing the long-term channel.  The second chart is a daily chart showing golds recent spike and crash, putting it back within the channel:

The next indicator with predictability in supporting GLD’s long-term trend are price levels.  These support levels are in green in the two charts above.  GLD is trading above one of those key levels at $154.  This price level will act as support but if violated becomes resistance.  Not shown in the chart above is the upside resistance level at around $164 – this price level will act as a level of resistance and if violated becomes support.

At a price of $157.77 (Thursday’s close), GLD remains above support and is still actually in the top half of its channel. I think the most likely scenario is some further weakness and consolidation within its channel.

Additionally, the 40 week moving average (approximately equivalent to the 200 day moving average) is at $151.40 and is sloping up.  It has more or less hugged the bottom end of the channel since 2008.  This moving average could act as a third indicator of GLD’s long-term trend. The 10 week and 40 week moving averages are shown in blue below:

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

Crocs Inc. (CROX): Anatomy of a Falling Knife

Crocs Inc. (CROX) has been a remarkable story since 2007, trading as low as $.79 near the end of the year. Perhaps even more remarkable was that it had traded at over $75 in 2007.  Since the sub $1’s in 2008 the stock rallied to $32.47 in August of this year.  On October 17th the company lowered third quarter guidance, dropping the stock from over $26/share to a closing price of of $16.15 on the 18th.

I typically analyze longer-term portfolio strategies, indices, and ETFs, but may start highlighting more individual stocks that I find in special situations. Nearly all strategies I highlight look for positive trends, relative strength via ETFs, and momentum in individual stocks.  CROX is in the exact opposite position – it is a “falling knife”, having gaped down strongly this week with no rebound so far:

The sell-off looks to be slowing, with the trading range today narrowing (i.e. a smaller candlestick) and volume is decreasing, although today it was still 1.66 times its average volume.  As already stated, I am by nature uncomfortable trying to catch falling stocks.  At the same time, trading gaps and volatility offer opportunity to traders and short-term investors.  How could a contrarian trader play a potential reversal in CROX?

Consider the following weekly chart, showing two potential support levels (in yellow).  The chart also shows fibonacci retracement levels in red, starting from the low in 2008 to August’s high.  Potential support could be found at either yellow support line or the 61.8% level at $12.89:

If we look on a daily chart you will see that today’s close is more or less at the first support level.  Failure to hold support in the short-term would mean a fairly quick move to around $14:

What is the risk at these levels? If the overall equity market shows weakness, I think CROX could struggle along with it.  Investors are not in the mood to support companies which miss on earnings or lower guidance. I stated yesterday that I am not too excited about the overall US equity market but am trying to keep an open mind.

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Institutional support could also wane, leading to further selling pressure. There has been heavy selling pressure this week, most likely led by institutions who are the largest shareholders of CROX.  The stock had strong institutional support at the end of the quarter for June 30th.  According to AlphaClone the stock had 15 funds buy into it in the second quarter and 0 sold out.  Forty-three funds increased their position size while 8 decreased.. Three analysts updated guidance on the company on the 18th, with price targets ranging for $21-$25/share.  I pay little attention to analysts expectations and price targets, but it is worth noting.

From a valuation perspective, the company’s third quarter numbers still look decent. Sales are growing at nearly 30% year over year. However, jittery investors, already nervous about a European banking collapse or another US recession, are evidently worried the stock could repeat 2008.  The company’s specific guidance is below:

“For the third quarter of 2011, the Company now expects revenue to be in the range of $273.0 to $275.0 million, an increase of approximately 27% over the $215.6 million of revenue reported in the third quarter last year. This compares to the Companys previous guidance for third quarter 2011 revenue of $280.0 million. For the third quarter 2011, the Company now expects diluted earnings per share to be between $0.31 and $0.33 compared to its previous guidance of diluted earnings per share of $0.40.”



The company announces earnings on October 27th.  It is a risky proposition to make an investment in the company before then, but traders may find short-term opportunity by playing the support levels highlighted above and trading a short-term rally off these oversold levels. I think a repeat of the stock’s 2008 collapse is unlikely and the stock’s growth still looks strong. However, when coupled with my concern about the overall equity market the stock remains risky, at least until further clarification and guidance from management.

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.