How to use Factor Seasonal Charts to Improve Your Trading and Investing
Two popular ETFS – for the financial sector and technology – have our interest peaked. Cycles for the XLF ETF keep rising until April, and the seasonals show a dip ending about now and head upwards until at least January. As to Technology, see for yourself:
These charts are showing a bullish ride until January, and if there is a late year rally, especially after mid-December when any short term downwards cycles pressure vanishes, we may see the rises come true.
There’s been a lot of talk recently about trading Brazil’s ETF and how difficult it is getting as a fundamental macro play. The ETF has dropped recently, but this is perfectly in line with the EWZ seasonals and cycles.
Here is our best forecast:
This is one of the funniest videos we have seen on QE2, “the Bernanke” and the Fed’s policy of inflation, during a jobs-tight “I don’t have enough money and inflation makes it worse” recession, in order to stimulate the economy.
Our advice is the same: the Fed will stimulate and stimulate by lowering interest rates, but it will not stimulate the economy. It is pushing on a string because the jobs and industries are gone. Firms and people, however, will seek yield and seeking yield they will drive up the price of speculative assets. However, when the liquidity is withdrawn, we will have another CRASH again … just like the Dot.com bubble, real estate bubble, subprime mess, and so on.
We are in a “deleveraging” economy where we will keep reducing our debts and our borrowing (i.e. credit card usage), no matter how cheap money gets. A new frugality has set in during this Great Recession, reminescent of what happened during the Great Depression. Low interest rates will not change that behavioral pattern, and by the way, they won’t make the banks lend. The Fed with QE2 is trying to create additional reserves that banks then have to lend but if the banks don’t lend, which they are not doing and not likely to do, we are right back where we started.
In temrs of the John Q public, remember that home equity loans have dried up because housing prices have stopped appreciating and started falling, and will fall even moreso. It is now the era of renters. Consumers, worried about jobs and the economy, are looking for ways to reduce their debts rather than borrow more money.
However, for active traders we have the solution. Ride that liquidity wave by trading the stocks whose seasonals are in line with that bullishness and which, by the nature of the companies itself, will benefit from increased foriegn sales (due to a declining dollar), inflation and so forth. Caterpillar is a perfect example!
But I digress … here is that funny video I promised:
