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So far Derek Schmidly has created 19 blog entries.

Sectors of the Month – Dec 2015

Sectors of the Month – December

Going into December, we recognize that the current state of the market is one of the more difficult ones we’ve seen in a while for managing risk.  Some areas of the economy continue to perform well, but enough macroeconomic data has been soft and the potential for changes in fed policy have the potential to cause a lot of downside risk during a time of year when the stock market tends to perform well.  So, we are in the market but with a cautious eye to exit quickly if price deteriorates.

The three key sectors we’re focusing on this month are Technology, Industrials, and Insurance.

Technology (XLK)

This is the area that looks the strongest to us right now.  Whether it’s Internet, Semiconductors, Software, or Hardware – every area of the Technology space has been among the best performers over the last 3 months.  We’re investing in XLK, which is a broad representation of the Technology sector.  Technology has become so integral to our everyday lives and each year contributes to so much of the growth of our economy, we believe these are the companies people will more likely want to own regardless of the state of the economy.

Industrials (XLI)

Many of the larger holdings in the Industrials sector are in Manufacturing, Defense/Areospace, and Transportation.  In particular, we think that conditions could favor the Defense and Transportation elements of this sector.  The strong dollar and weak oil prices tend to bolster airlines because the strong dollar makes it more affordable for American to travel internationally and the low fuel costs helps improve the profit margins of the airlines.  The increasing conflict in the Middle East and other parts of the world makes it likely […]

By |December 3rd, 2015|Commentary, Sectors of the Month|Comments Off on Sectors of the Month – Dec 2015

Wartime: Stocks that Benefit

With the recent terrorist attack in Paris and speculation that more attacks are to come throughout Europe and the US, many are wondering if the world is on the precipice of a new major military conflict.  From an investor’s perspective, it begs the question, “what are some stocks that do well during wartime?”

Here are a few that I think could be interesting.

 

I’ve listed these in the order in which I would recommend buying them.  Looking back at 2001, when the attack on the World Trade Centers happened and in the months following RTN, GD, NOC, and LMT all did very well.  UTX and BA did not do well.  Those two fell along with the rest of the market as the economy was in recession from bursting of the technology bubble.  For that reason, BA and UTX would not be my first choice.  TDG was not publicly traded at the time.

As far as just looking at the financial statistics, TDG is the fastest growing, but because it wasn’t around during the last major terrorist attack and because it balance sheet has more total debt than total assets, it is listed further down.  LMT has somewhat poor financial statistics.  The high price to book ratio and the high debt to equity indicate that they also have a much higher debt load than many of the companies.  Also, their net profit margin is on the low end of the group.  So, although I think LMT would do well during wartime, I like the top 3 companies more because of the strength of their financials.

The performance of these stocks on November 16th, after the weekend news from Paris, I think gives a unique insight and preview as to what […]

By |November 18th, 2015|Market Commentary|Comments Off on Wartime: Stocks that Benefit

Changes to Social Security

In the last couple of weeks new laws have been passed that make sweeping changes to social security rules that affect how and when a person can take their benefits.  In short, these changes eliminate some of the strategies that couples have previously been able to use to increase the amount they receive during retirement.  Here is who is affected:

If you are not 66 years old by May 1, 2016, you will not be able to use the “file and suspend” strategy. This is a strategy whereby one spouse receives spousal benefits from ages 66-70 while the other spouse suspends his or her benefits until age 70 to receive a higher monthly amount.  If you have turned 66 before that date and you haven’t yet started taking benefits, then you need to act, before April 30th, in order to be grandfathered into the current system.

If you are not 62 by the end of 2015, you will no longer be able to file a “restricted application” for benefits. Most individuals have the option to either take spousal benefits or receive benefits based on their earnings.  If a person takes spousal benefits during their 60s (even if they are a lower than their own benefits), that allows their own benefits to continue to bump up each year, so that the person can then switch to benefits based on their earnings at age 70 at a much higher amount.  The new law eliminates that choice if you are under the age of 62.  Instead, if you apply for benefits you will automatically receive whichever is higher between the spousal benefits verses your own benefits.

If you have already done some planning for social security and fall under either one […]

By |November 17th, 2015|Personal Finance|2 Comments

Market Update & November Sectors

The market has been on quite a roller coaster ride the last 3 months.  In August and September, our systems got widespread sell signals across the board.  All the charts and indicators showed the typical characteristics of the early stages of a new major bear market.  Because of that, for most of the month of October we were positioned defensively to protect against a market decline.  But, instead, the market rallied ferociously with some serious velocity and magnitude.  Unfortunately, because of our position we didn’t participate in the rally as many of our systems don’t get a new buy or sell signal until the end of each month.

So, with October ending, many of our strategies got signals to buy back into the market.  We’re still a little skeptical of this rally; economic data hasn’t been great and the rally could just be enough to squeeze out the sellers before making another move down.  Regardless of our opinions, we follow the rules of our strategies because that’s how we get an edge on the market over time.

So for the time being, we have an ‘all clear’ to move back into stocks.  However, if the S&P falls below 2030, that’s where we would start to reduce our market exposure again.

As for the trades we made, our Sector Rotation system purchased Software (IGV), Real Estate (IYR), and Leisure (PEJ).  Other systems moved into the ETFs that follow the broad market (IVV, FEX).

Leisure

The Leisure sector is all about the holidays.  This fund invests heavily in consumer discretionary companies like Starbucks and Disney as well as many Airline and Travel related companies.  We think that low fuel costs will continue to boost the airline and travel industry and help this […]

By |November 2nd, 2015|Market Commentary, Sectors of the Month|Comments Off on Market Update & November Sectors

Paying Down Debt vs Saving for Retirement

Should people save for retirement or pay off loans?
People should do both at the same time: always start saving for retirement as well as pay on debt. Some leading personal finance experts focus completely on debt, but I believe that saving for retirement is very valuable to have the habit as early as possible even if the amount is small. The fact is that you will always pay your debts because there is a reminder each month asking for payment and if you do not pay someone will even give you a call. However, with retirement saving there is no request to send payment each month and nobody calls if you forget to send it. Essentially, it is crucial to view saving for retirement just like a bill because it really is. It is paying a future bill when you no longer have a job or income producing options in life. Pay both like they are bills and this will curb some of your spending habits while at the same time preparing for the future.

Another downside to paying off all your debts first is that you will always be tempted to take on more debt to replace what you paid off. Companies are always doing their best to hook you with another deal. If you already have a debt to income ratio that is too high to qualify, then you may not qualify which will possibly keep your spending in check. At the same time you are paying your future bills by saving for retirement. If your employer matches some of your retirement contribution, then you are really better off with doubling your savings right off the start.

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Interested in learning more? Contact Auxan Capital Advisors, […]

By |October 14th, 2015|Personal Finance|Comments Off on Paying Down Debt vs Saving for Retirement

Tactical Update – October 2015

Last month our strategies took defensive position, so much so that we had net negative exposure to the stock market.  So far this has paid off as we have profited from the market’s drop.  The decision to do this was based on broad macroeconomic risks picked up by our models, and these risks are still the dominating force that is driving our positions going into October.  These macro conditions have not improved, so for the second month in a row we will continue to be defensive in our positions.  Our largest position is and will continue to be an S&P Inverse ETF (SH), Bonds, and Cash.

 

However, we plan to add two new holdings next week to begin dipping our toes back into equity exposure.  These new positions are part of our Calendar system, which is just one piece of our overall strategy for wealth management.  Combined, the new positions will represent less than 15% of our portfolio.  The result will be that our net exposure to equities will be breakeven (evenly hedged) to slightly negative.

 

The first of these new positions is going to be an Alerian MLP fund (AMJ).  MLP stocks are typically high dividend payers with ties to Energy, Infrastructure, or other Basic Materials.  This ETF has fallen nearly 50% since its peak just over one year ago (See below).  Because of this substantial fall, the dividend potential is all the more magnified.  This particular ETF has a current dividend yield of over 7%, and there are plenty of individual MLPs that are in the 10-15% range on dividend yield.   In addition to the dividend, we believe there is plenty of potential for capital gains over the next 6 months because the price is […]

By |September 30th, 2015|Commentary, Sectors of the Month|Comments Off on Tactical Update – October 2015

Time to Get Defensive – Sept 2015

In the Auxan Capital style of wealth management, we have many strategies, one of which is a Sector Rotation system. Our approach is to purchase three sectors or countries each month out of a basket of 40. The sectors we purchase are determined by a series of four technical analysis indicators.  As I get the signal, though, I can’t help but consider what fundamental or economic scenario might be setting them up for success.  For the month of September, our Sector Rotation system is moving into defensive mode. It is invested 50% in the ProShares Short S&P 500 inverse fund (SH) and 50% in cash.  If you prefer not to use inverse funds, consider buying treasury bonds as a hedge instead.

There are times when a 10% pullback looks like a buying opportunity, and there are times when it looks like the beginning of a new bear market.  We think this pullback in recent weeks looks more like the latter.  Here are a few reasons:

1. In July the S&P quietly broth through a long term trendline established since the 2009 bottom.

2. The S&P broke through its trending channel and has pulled back to test the resistance.  It has been met with heavy selling every time it peeks into the 1980-2000 range.

3. On Aug 21st the S&P broke through its 350 day moving average, which has been an excellent litmus-test as to whether the market is in a bull market or bear market.  Now that it is below this line, odds are much higher that we are in the early stages of a bear market.

4. On Aug 20th, the S&P completed a Head and Shoulders pattern that had been developing over a 6 month period.  This pattern commonly occurs at key […]

By |September 14th, 2015|Commentary, Sectors of the Month|Comments Off on Time to Get Defensive – Sept 2015

Why Can’t the Market Breakout?

A lot of commentators on the stock market and financial advisors have pointed to a lot of different factors to explain why the market has been so flat this year. The factors include earnings and valuations, growth rates, fed expectations, international risk, and so on. And there is some truth in all these arguments. I’d like to point out a factor that I’ve not seen anyone discuss. It’s a technical analysis factor that has been in the making for over 15 years. What I’m talking about is a long term Fibonacci extension. For those that aren’t familiar with Fibonacci, it is a series of numbers and ratios that frequently occur throughout nature, and in the stock market as well. Part of the reason why this analysis works is due to the effect of self-fulfilling prophecy, that is, there are so many people watching Fibonacci lines that their pervasiveness makes them relevant. Fibonacci analysis can be used for retracements (predicting where a pullback will find support) as well as extensions (predicting where an uptrend will run into resistance). To do a Fibonacci extension, what I like to do is establish the bottom line on an obvious low point. After that, I pull the top line upward above the current market price until the 3 middle lines suddenly line up with a lot of previous highs and lows. Look at this example:

By establishing the bottom line on the 2009 low and then pulling up the top line until the middle lines suddenly touch several highs and lows, a person could have predicted that the S&P would likely run into resistance at 1,350 as early as Fall 2010. The next chart I’m about to show you is the […]

By |August 7th, 2015|Market Commentary|Comments Off on Why Can’t the Market Breakout?

Sectors of the Month – Aug 2015

In our company’s style of wealth management, we have many strategies; one of which is a sector rotation model. The system typically purchases 3 sectors or countries each month out of a basket of 40. The sectors we purchase are determined by a series of 4 technical analysis indicators. As I get the signal, though, I can’t help but consider what fundamental or economic scenario might be setting them up for success. These articles will be a monthly commentary detailing what we’re doing and why it might make sense from a technical and/or fundamental perspective.

For the month of August, our three sectors are Insurance (KIE), Housing & Construction (XHB), and Health Care (FXH).

Insurance

Occasionally in our process of sector rotation we have a sector that stays “in the zone” for more than one month. That is the case this month with Insurance, which we bought initially at the end of June and we will continue to hold for another month. From a fundamental perspective this sector makes a lot of sense. Insurance companies are constantly investing the premiums they receive into a variety of bonds and other fixed income instruments. The prospect of the fed beginning to raise interest rates very soon will really help this sector (along with many other financial sectors) improve the performance of their investment holdings.

Homebuilders

Homebuilders was added this month. The chart looks like it’s very close to a breakout and the thing that I like about this sector is that a big piece of its costs are related to raw materials. Because the value of most commodities have been getting hammered in recent months, I expect that that could decrease the cost of materials for builders and thus increase their profit margins. […]

By |August 7th, 2015|Sectors of the Month|Comments Off on Sectors of the Month – Aug 2015

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