Over the holidays I was talking investments with family members, and the question came up as to whether I thought the RSI Indicator was of any use or not.  To be honest, I responded I had never looked at it, so I couldn’t offer an opinion.  Since then, I have been casually watching it, and I am now of the belief there may be something to it.

In case you are not familiar with the Relative Strength Index (RSI) technical indicator, it essentially tracks short term momentum.  This page provides a great overview of how it is calculated and its history.  In summary, it flashes a sell signal when a dramatic increase has happened over 14 days, or a buy signal when a dramatic decrease happens over 14 days.  The theory being that after 14 days of buying or selling, the inventory of people who would buy or sell is pretty much exhausted.

So in late January, I noticed a bunch of stocks where the RSI was flashing sell.  In particular, the S&P ETF (SPY):

S&P 500 (SPY)

Notice after the big run-up the RSI was over 70 (SELL!)  and subsequently the market corrected.  It then switched to a buy (RSI under 30) at the bottom.  Note however that it kept going up after initially hitting the over 70 mark, so if you sold then it likely wouldn’t have worked.

Amazon was the one that caught my eye.  This was my first test case, as I was looking to reduce my exposure to Amazon anyway, I figured with the RSI over 70, that was a reasonable time to unload some shares.

Amazon (AMZN)

This didn’t work real well, since it dropped less than most stocks in early February, and it quickly recovered the loss later in February.

The current one I am watching is Zillow:

Zillow Group (ZG)

 Looks like it is following the classic pattern, and now the price is starting to break down.  My working theory is that the strategy is to underweight a stock that has been over 70 RSI for 4 days.  And consider overweighting a stock when it hits 30 RSI.  Of all the charts I have looked at, that appears to be the formula based on the patterns.

My next step is to start tracking RSI and backtest a number of different formulas to see if there is a pattern here.  And if there is, I will plug it into my stock technical model.

The above charts were provided by stockcharts.com.  Try running some of your favorite symbols thru there and see if you find a pattern.  I still am resisting technical analysis, it seems a little voodoo that this is all driven by emotion.  But if I can nail down a pattern with this indicator, I might finally give in to the dark side of investing.

For years I have used Googles portfolio viewer to track stocks in my portfolios.  It was fast, had plenty of fundamental and technical data, and allowed easy tracking of news related to the portfolios.  Unfortunately, in the middle of November, Google deprecated their portfolio feature, leaving me to wander around for a better portfolio viewer.

I will miss the old Google interface:

Well organized and to the point.  I thought that with all the portfolio managers around, I shouldn’t have problems finding a new one.  My requirements were pretty simple.  Ability to track multiple portfolios, show daily price changes at a glance, and allow you to add stocks to a portfolio in bulk – i.e paste a string of symbols in to add stocks.  So I looked far and wide at all the various offerings, paid and free, and it took me a long time to settle on one that I liked.  The one I settled on?  The folks at Seeking Alpha seem to have created the best one I could find:

It meets all my requirements, has a clean interface with access to lots of stock financial information.  It doesn’t have the technical tools that Google Finance had, but I can do without that most of the time, and can probably find another source of that information when I need it.  One issue I have noticed is in the morning right after the market opens, it appears to be pretty sluggish.  My guess is a lot of people are finding this tool, and they are experience higher traffic now that Google has dropped out.

I would have been willing to pay for a full featured portfolio tracker, but I couldn’t find one that met my needs.  Maybe its time for some startup to really take advantage of the opening left by Google Finance’s changes.

In the meantime, I am very pleased with the tool Seeking Alpha has provided.  Check it out if you are looking for a new portfolio tracker.

Note to Readers:  This article was not sponsored in any way by Seeking Alpha.  I have written articles and been compensated by Seeking Alpha for those articles, but this is a personal blog post initiated by me and unrelated to my relationship with Seeking Alpha.

I just posted an analysis of Rocky Brands (RCKY) on Seeking Alpha.  Check it out here:

Rocky Brands: The Margin Story Is Better Than The Revenue Story

An interesting company that has been able to increase margins while sales are shrinking.  Will be interesting to see how this plays out.

After years of ignoring all those requests for free airline miles for signing up for a new credit card, I finally decided it did not make economic sense to ignore the offers.  American Express has really sweetened their offers, likely because since they lost all their Costco members, they are seriously looking for cardholders.

Thinking about it, I decided to break it down to a bet.   American Express (Amex) offered my 60,000 miles for signing up for a card.  If you assume a mile is worth roughly a penny, that’s $600.   So why is American Express so willing to part with $600?  Lets assume the actual cost to the airline is around $300.  I have no idea what the margin is on airline tickets, so lets just use 50% for this example,  If I buy a ticket using miles and the seat would of been empty anyway – it costs the airline very little.  But lets just assume the airline dings American express for $300 for driving traffic to this airline.

So, Amex thinks they get at least $300 of benefit by giving me a card.  I normally wouldn’t get an American Express card, as not everybody takes American Express – for good reason.  If I were a merchant, I wouldn’t take American Express, since they typically charge upwards of 1% more to the merchant than Visa or MasterCard.  So with apologies to merchants everywhere, if I spend their required $3000 on the Amex card, they are getting $90 in credit card fees from me.  Also, after the first year, they charge $90 for the card.  So if I keep the card for over a year, and spend roughly $7000 on the card, lets assume they break even.

Amex of course hits the jackpot if I carry a balance on the card or am late on a payment, so that’s the real gamble here.  They don’t know that I have very few firm rules in life – but one of them is to not carry a balance on a credit card – that is fiscal suicide.  They card around 25% annual interest on balances, in an environment where we get 1% on our savings.  Gee – even bankers can make money with that kind of spread.

So I took them up on my gamble, picked up the miles, and just purchased an airline ticket using the miles and saved $600 on the price of the ticket.

So so far – so good.  I have a process in place to manage the process, and track when my annual fees are due.  I also need to take a look at what opening these new accounts does to my credit, as that would be a hidden cost here if that is impacted.  I would not recommend everybody do this – it takes work to track all this, and in some sense you are playing with a fiscal bomb if it backfires on you.  So be aware this is not a free offer in the economic sense.

So who wins this bet?  I am going to say both me and Amex.  I currently plan to keep using the card for this year, and getting my miles balance back up to where I can get another ticket.  Amex gives me 1 mile for every $1 spent, which is roughly what my other cards give me for general purchases.  So I will use this as my primary card, until the year is up, then likely cancel if they try to charge me an annual fee.  So if I hit the $10,000 on that card this year, they essentially break even.

So as much as I was hoping to take advantage of stupid bankers.. it turns out they might end up benefiting them also.  I guess I will have to be satisfied with just shrinking their margins.

Of late I have been doing a lot of analysis around stock market sectors.  In the past I hadn’t really paid too much attention to sector weighting, but during all the technical analysis I have been doing has let me to believe there probably is something to trying to allocate holdings by sector.   I recently completed building my sector analysis model (see it here), and am test driving it to see if it can lead to enhanced returns in my portfolio.

During my deep dive into this subject, I ran across this page on the Fidelity website that did a pretty decent job of giving basic sector weighting advice.   They use a business cycle approach to sector weighting, and they had this interesting chart showing how different sectors do during different parts of the business cycle:

Fidelity’s opinion is that we are in the mid to late phase of the business sector, and that seems reasonable to me.  So using the chart above should give you an idea as to what sectors to start thinking about over-weighting or under-weighting.

One thing I realized when I started looking at my holdings by sector that I was way overweighted in the Technology and Consumer discretionary sectors.  This is because I typically ‘buy what I know’, products or services that I use.      I don’t think there is anything wrong in buying what you know, but this analysis has helped me keep better disciplined as to managing portfolio risk.

So its been an interesting dive into thinking about sectors, whether or not its meaningful or not only time will tell. I will be watching the market with a focus on sectors, and will see if this can be a tool to enhance portfolio performance.

I have followed the stock for eMagin for years, and finally gave up on it for good a couple years ago. But my technical indicator shows a possible upside move in the offing.

Check out the full story on an article I wrote on Seeking Alpha:

There are lots of commentators arguing both sides about whether or not we are at peak stock market valuation.  Certainly there is evidence that the market is richly valued, yet the market still goes up.

John Hussman just published a compelling analysis of where the market is valuation wise, showing how by one measure the current stock market overvaluation already exceeds the 2001 tech bubble.  This chart breaks valuation down by market breadth, showing that if you look across the whole market, the value sectors are more overvalued that in 2001:

Note that the mid to low valuation stocks are at higher levels than in 2001, showing the market is much more broadly expensive than when the tech stocks were all the rage.  One analysis of this could be that this is all due to the lower bond rates, and by comparsion to current bond rates the market is in an expected valuation range (kind of reminds me of the old joke about a guy bragging to his friend that he just bought a dog for $20,000 – when asked how he paid for it, he said ‘I gave the seller two $10,000 cats’).  Valuation is relative.

So this doesn’t tell me conclusively that the market is at a top.  Indeed, John Hussman had a similar market top article a year ago, and the S&P 500 is up over 13% since then.  My current leaning is a major market correction will happen before the next presidential election, but I don’t currently see any signs within the next 6 months.  I will agree though that we are in risky territory.

Many Economists are making dire predictions about the next economic slowdown due to the increases in world leverage since the 2008 crash.

Bill Mauldin is the latest to publish an interesting commentary on this.   The main thesis of his post is he sees far more dangers than the Federal Reserve.

His biggest beef is with Janet Yellen’s recent quote:

Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we’re much safer, and I hope that it will not be in our lifetimes and I don’t believe it will be.

Contrast that quote with this chart Mauldin included showing how much more the world is leveraged than in 2008:

So who is right:  Was 2008 a once in a lifetime economic experience, or is there another disaster looming?  As is true in most cases, hopefully the answer is somewhere in the middle.  But the leverage is something to think about.  In 2007, the GDP of the G7 countries (which is a decent approximation of the above chart) was 31 trillion.  In 2017, it is estimated to be 36 trillion.  In 10 years, the G7 economic output as increased just over 16%, yet leverage is now more than tripled.

So for an analogy, lets say in 2007 you were earning $31,000/year, and had outstanding debts of $4,000.  In 2017, you think you will be earning $36,000/year with debts of $13,000.  Would you consider yourself fiscally better off in 2007 or 2017?  How worried would you be if there was a recession on the horizon.

Some economists may question whether this is a valid analogy or not, but it does show the magnitude of how the countries fiscal health has changed.  Obviously Janet Yellen doesn’t consider that analogy totally on target,  based on her above quote.  I would sure like to see better evidence as to why she thinks we are so much better off now.

If I had to pick between the two camps in this argument, I would lean toward’s Mauldin’s thinking.  His quote:

Generals always fight the last war. The next crisis probably won’t originate in residential mortgage loans. It will come from somewhere else, and we have no idea whether the banks are actually ready for it.

I don’t get the impression this worldwide glut of debt greatly concerns the Federal Reserve Board.  Hopefully they are right.  If they are wrong, history will likely place the blame for any major economic downturn squarely on the Federal Reserve and all worldwide central banks.

After a long break from writing for Seeking Alpha, I have gotten back in the groove again and just had another article posted.

3 Questions For Fitbit Investors

This article has been brewing in my mind for several months, and I finally had a chance over the long weekend to get my thoughts organized and in ‘print’.

To read the whole article, you will have to register with Seeking Alpha (which I recommend to any investor).  This site has interesting articles written by a wide variety of authors – a great resource if you are looking for investment opinions.

I have been doing some portfolio pruning of late, and have decided to drop two stocks from the Puget Investor Portfolio.

Nordstrom (JWN) has been a long time holding that I finally decided to drop altogether.  Last year I wrote about my concerns about Nordstrom, and why I unloaded most of my holdings.  The thesis from last year remains – Amazon is going after clothing retailers, and I don’t want to bet against Amazon.  When I saw that Amazon has come out with the Echo Look Style Assistant, I knew it was time to fully abandon my Nordstrom position.  The Echo Look appears to go after the young fashion conscious consumer that would shop at Nordstrom – and I don’t know if Nordstrom has an answer for that.

Last week Nordstrom’s announced it was considering going private and the stock bounced a bit.  An interesting development, but I am not sure if that is the answer.  But I wish them good luck.

One related interesting stat I heard regarding retail.  Because brick and mortar retailers have such high fixed overhead – if online takes just 25% of the traffic from stores, the store cannot survive.  Most retailers are operating under such tight margins already, even a small drop-off in traffic could have painful consequences.  Something to think about.

My reasoning to drop Hooker Furniture (HOFT) was a different story.   I originally bought HOFT a couple years ago while perusing AAII‘s model portfolio of cheap, small cap stocks.  After looking at a few of these stocks, I opened a small position in several of the stocks that looked like they had decent business models.  As is often the case, this strategy had mixed results, some stock had done well – some did not.  At the time Hooker was amazingly cheap – price to book around 1, little debt, flat to growing revenues.  Seemed like a no-brainer, so in March of 2016 I picked it up around $32.  It soon got cheaper, for no apparent reason (my thesis was still intact), so I picked up some more at $25.  I was beginning to sweat my decision as the stock went no where for months, but I held on, and suddenly this month it surged to $46 on decent earnings (who new.. millennials are buying furniture!).  Since the stock no longer is dirt cheap, and I am not a big bull in the growth of home furnishings, I decided there is no reason for me to keep this.  So I am out.

I still have a couple stocks from my foray into the AAII model portfolio, Rocky Brands (RCKY)  and Ultra Clean Holdings (UCTT).  I am going to have to make a decision soon on these stocks also, as these have started to move up and I am not sure I can call them cheap anymore.  Either come up with a new thesis, or drop them.

I am re-evaluating how many individual stocks I should own, so I may not replace these stocks with new holdings.  I may go back and look at other AAII Model Portfolios for ideas, or just add to existing positions.