Published October 14, 2016
The Ticker Tool is a powerful way to see how relevant our signals are to a given security. The results you will see are the results of applying our Turbo signals to the security you input. Let’s look at an example. In this example we are curious whether the Turbo Model works well if we buy XLV when Turbo is on a Buy signal. We are thinking we will just short the broad market on a Sell signal, so we input the SPY (S&P 500 ETF).
Chart 1: Buying XLV on Buy signals; buying SPY on Sell signals
It doesn’t look like this combination works very well. The Long and Short results are well below using a Long Only or Buy & Hold approach to XLV/SPY.
The problem is that the Ticker Tool is reading this input as you want to buy XLV on a Buy signal and buy SPY on a Sell signal. That is not what was intended. We actually wanted to SHORT SPY on a Sell signal. So how do we input that? First, we have to find the inverse ETF for SPY. We can do that by going to the ProShares site and finding the short S&P 500 ETF:
We see that SH is the symbol for the inverse S&P 500 ETF. Using that symbol instead of the SPY symbol as shown on Chart 2:
Chart 2: Buying XLV on Buy signals; buying SH on Sell signals
Yields much better results as we are now really shorting the S&P 500 through buying the inverse SH to use on Sell signals.
If you happen to leave the Inverse Ticker ETF box blank, the system will assume that on Sell signals you are shorting the security you have input for the Long Ticker. In the screenshot below, the system is buying XLV on Buy signals and shorting XLV on Sell signals.
Chart 3: Leaving the Inverse ETF box blank
In reality, we may or may not be able to actually short XLV. It will depend on the broker and their availability of shares for us to borrow. Far easier just to buy the inverse ETF.
We are always here to help guide you around our website. So don’t hesitate to drop us an email if you need help or have questions. Our Ticker Tool is a great way to see if applying our signals to your preferred security works well. Does our Turbo Model do a good job timing gold? The Ticker Tool will show you.
Won’t the Fed’s printing of money lead to inflation?
Chart 4: Components of Consumer Price Inflation (CPI)
While that may be true in countries where commodities are scarce and labor plentiful, in the U.S. it’s usually the other way around. Labor costs account for 70% of corporate cost inputs, on average, and are therefore the big bugaboo of inflation in company cost structures. For the average household, housing/rent/mortgage payments are the primary cost input to drive inflation. If I’ve been able to refinance my mortgage once or twice over the past few years, I’ve experienced a good dose of DEflation. However, if I’ve got two children in college and also support my parent’s medical bills, I’m faced with the two worst sources of inflating costs – college and healthcare. So, it’s important to understand that inflation is very much dependent on a person’s living situation and cost structure. Commodities only account for about a quarter of the average person’s costs as shown below in the breakdown of the CPI – the most widely-reported measure of inflation. Note again how much housing factors in. If you don’t pay much for housing – perhaps because you’ve paid off your mortgage, then your cost structure is quite different than that shown as the average.
Many commentators and doom sites would have you believe that increasing the Fed’s balance sheet automatically begets inflation. Of course economics, and certainly market reactions, are never so simple and straightforward as they suggest. Though the Fed has been buying lots of assets over the past few years, much of this “printing of money” has just been going to pasture on bank balance sheets, not finding its way into the economy where it could indeed serve as a catalyst to push up prices. We are certain that inflation will rise from current low levels someday. Though that has no bearing on our Models, we expect that increasing inflation will be a result of improved economic activity and there will be an investment play to be had. That’s the other point. When you are a Long and Short trend-following investor, there is always a way to profit from the markets. It’s just a matter of catching the wave and riding it – something we are always endeavoring to achieve.
Investors entered the third quarter earnings season this week hoping that 5 quarters of declining corporate earnings would not become a sixth straight slide. The week kicked off on a positive note as oil rallied on supportive comments from Russia regarding halting production to stabilize prices. In addition, Apple (AAPL) continued its recent upward move on Samsung’s struggles with battery fires in its new Note 7 phone. The S&P 500 rose +0.5%. The Samsung concerns jumped several fold Tuesday when the company announced it was discontinuing sales and production of the phone.
Adding to the market’s worry was a very sour revenue outlook from Alcoa (AA); and a -2% slide in the British Pound with Brexit concerns haunting the currency since the prior week’s announcement that Prime Minister May would go forward with talks separating the nation from the European Union. Stocks fell -1.2% in a broad-based decline. A technical bounce in beaten-down interest-sensitive sectors like real estate and utilities helped offset lingering market worries to hold indexes flat Wednesday. A surprisingly negative economic report out of China pressured markets Thursday morning with stocks down -1% early in the session before buyers jumped in to reverse the slide and trim the loss to -0.3% on the day. Bank earnings day on Friday with all of the major banks beating estimates and performing well. The initial rally on the news was capped, however, with the overhang of uncertainty from so many angles continuing to keep stocks gains in check.
Warm wishes and until next week.