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Market in Rally Attempt

Market in Rally Attempt

When I wrote my post on July 7th about stocks rallying on earnings expectations I warned about this rally as it is not confirmed and it may fail. Even though the market made an impressive move and achieved great gains since then, it is still in an overall downtrend. Last couple of days I was quite busy, so today I could go back to check the chart more in detail and determine whether I can consider this rally attempt to be changed into a confirmed rally, since the market was gaining the whole last week.

If you had a chance to study books about how to recognize the trend of the market, you may already know what the characteristics are. When you take a look at the chart of S&P 500 you won’t see the market in confirmed rally yet:

S&P500

To confirm the trend we want to see it creating new higher highs and new higher lows. We want to see it trending above 200 MA and above 50 MA. None of it is happening yet. Although the market created nice reversal in oversold zone (see the arrow) on a strong volume and moved more than 3% that day, this new trend still may fail. When you take a look at the weekly chart, the picture is even clearer:

S&P500

When taking look at the weekly chart, we can see that the market did a reversal in March 2010 which ended the previous impressive recovery rally and then on strong momentum declined and reversed in June 2010. However as we experienced that June’s trend failed. So this new rally attempt still doesn’t tell us anything about the trend. Will it survive or will it fail? If it fails, the momentum is getting stronger and we may expect further drop dragging the stocks down with it, or if it survive, the stronger momentum can move the market higher and we can start recovering from this correction (which still looks quite healthy to me, so no worries about second dip…yet).

Until this happens, it would be very risky buying stocks right now. If the trend confirms itself you may feel sorry that you haven’t jumped in, but buying now may bring losses if this is a false trend. The choice is yours.




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Stocks rallied on earnings expectation


Today, the stock market rallied on earnings expectation, which on the other hand makes me feel like wishful thinking. If the earnings show to be disappointing, the stocks will fall back down. Today’s gains were very impressive as the Dow Jones Industrial Average (DJIA 10,018, +274.66, +2.82%) closed above 10,000 points for the first time since June 28, boosted by financials, technology and energy stocks. The S&P 500 (SPX 1,060, +32.21, +3.13%) rose 3.1% to close at 1,060, and the Nasdaq (COMP 2,159, +65.59, +3.13%) advanced 3.1% to close at 2,159.

These gains would normally change the market status into a confirmed rally, but in such a volatile environment we are recently experiencing I would stay with a Rally Attempt status and wait for confirmation to see whether this rally sustains or it is just another bull’s trap.




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Posted by MartZee June 29, 2010
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Market slips into a correction after US consumer confidence data


Stocks dropped more than 2 percent on Tuesday after data showed U.S. consumer confidence fell steeply in June on worries about the labor market. Based on that I am considering the market being in correction. No new buys during this time in my trading account (well, right now I do not have free money anyway).




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Posted by MartZee June 23, 2010
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AOD dropped from portfolio, JNJ added.


Yesterday Alpine Total Dynamic Dividend Fund (AOD) dropped significantly down in price and today it continued down as well at the same speed as yesterday. On discussion boards I could find busy discussion why that happened. Mostly the concern was about a recent article by Dan Plettner at Seeking Alpha who wrote in his “Alpine’s Total Dynamic Dividend Fund: Overdosing on Financial Engineering” article why he thinks the methods of AOD’s trading and distributions are not sustainable.

Many members of the board were angry with him, because he is short the stock, he published the article at ex-dividend day and he possible triggered the sell off.

No matter what, he pin-points couple serious questions some investors refuse to discus or even consider. I must admit, that when I was buying AOD I was looking at the yield and totally ignored other aspects he brought up. So even though I lost money on this investment, he actually made me a favor by clarifying several things I have to take a look at in the future.

First my concern is about a constant NAV depletion. The fund opened in January 2007 at $19.07 NAV trading at $20 a share. Since then the NAV has been depleted to $6.78 (as of the end of March 2010) so the price had to drop as well. Any price above this NAV (premium) has no solid base and is risky to trade. As a long term investor in this case I do not like holding a fund which will potentially loose its capital and with this speed of three years (losing 65% of its NAV) it may happen pretty quickly.

I saw arguments that underlying portfolio will improve the NAV of the fund, but that doesn’t too sound to me.

With a danger of cutting the dividend and further drop in price I decided to liquidate my position in AOD and relocate my money into Johnson & Johnson (JNJ).


06/23/2010    Sold   219   AOD   @   6.2101

06/23/2010    Bought   23   JNJ   @   58.8594




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What’s happening with IGD?


Today Global Equity Dividend & Premium Opportunity Fund (IGD) dropped price by almost 6%. Why is it happening? The fund announced a distribution yesterday and it meant another distribution decrease (a third decrease in a row).

ING Investments, LLC announced the monthly distributions on the common shares of two of its closed-end funds: ING Global Equity Dividend and Premium Opportunity Fund (NYSE: IGD) […]

The monthly distributions announced today are reduced from distributions paid in prior periods in an effort to align the Fund’s distributions with the current conditions in the equity and options markets. The Funds’ management considered a number of factors before deciding to decrease … Fund’s distribution, including the level of assets in each respective Fund, the dividend yield of the underlying equity portfolios and prevailing implied option volatilities.

With respect to … (the) Fund, the distribution will be paid on July 15, 2010, to shareholders of record on July 6, 2010. The ex-dividend date is July 1, 2010. The distribution per share for … (the) Fund is as follows:

Fund Distribution
Per Share
Change from
previous
month
ING Global Equity Dividend
and Premium Opportunity
Fund (NYSE: IGD)
$0.100 – $0.025

I checked the stock (fund) closely to see why this is happening and whether I should sell this ETF or hold it. ING Global Equity Dividend and Premium Opportunity Fund (the Fund) is a non-diversified, closed-end management investment company. The primary objective of the Fund is to provide a high level of income, with a secondary objective of capital appreciation. The Fund seeks to provide investors with a high level of income from a portfolio of global common stocks with dividend yields and premiums from covered call option writing utilizing an integrated option strategy. The Fund would invest at least 80% of its managed assets in a portfolio of common stocks of dividend paying companies located throughout the world, including the United States. The investment adviser of the Fund is ING Investments, LLC. The Fund’s sub-advisor is ING Investment Management Advisors B.V.

I looked at the Fund’s numbers and during 2008 – 2009 the Fund has been losing money due to financial crisis. The Funds holds 20.56% in Financial sector and during the crisis this got hit severely:

Top Sectors

% of Total Investments as of 04/30/2010
Financials 20.56%
Energy 12.20%
Consumer Staples 12.10%
Utilities 10.94%
Health Care 10.48%
Telecommunication 9.03%
Industrials 7.08%
Information Technology 6.43%
Consumer Discretionary 6.39%
Materials 4.78%

Another issue is that the Fund holds almost 40% (37.44%) of its holdings in European regions and these were hit severely too due to debt crisis in Greece, Portugal and Spain.
In this light it seems to me as a wise move that the management reduced the Fund’s distribution to keep the fund aligned with its current cash flow. The total yield is still more than 10% and when considering that the financial sector as well as Europe will not be in the crisis forever, the IGD is a great opportunity to buy at a discount right now as a long term investment.

Based on that I decided to hold on this ETF and as my cash allows I will potentially buy more shares.




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