We consider Broker/Dealer (XBD) our main market indicator. Wherever the market is heading, XBD moves there first. If XBD doesn't support a move by the rest of the market, something is wrong with the move.
Prior to this year, there were very few significant pullbacks by the XBD this century. Now that interest rates are back to normal, we're getting some significant rotation from the brokers.
In late January, XBD surged to new highs. There has been no value to shorting XBD when it moves to two standard deviations above its mean. Still, we noted the event by writing "Bonds continued to fall last week, with rates rising. Broker/Dealer (XBD) generally rallies along with rates, or opposite bonds. XBD fell just short of Zone 6 this time -- when was the last time that happened? The market is due for a correction, including a Zone 1 reading, and the first quarter of the year is a good time for it." At the time, Broker/Dealer (XBD) was trading at 254.
By March 12, XBD had dropped to more than two standard deviations below its mean. That prompted us to devote our front page to the index, with the headline "Zone 1 for XBD." The index experienced a turnaround during the week before the XBD issue. In that issue, we wrote "...the index bottomed out at 69% oversold on a 90-day basis, and 143% oversold on a 10-day basis." The index had rallied at bit by the time we wrote that weekend, but on March 12 Broker/Dealer (XBD) was at 234.
Nearly three months later, it was time to get out. On June 4, we said "The DYR Phase Chart has resumed its march upward, and now stands at -53 in Zone 6. The yield indexes are in Zone 6 over both 10 and 90 days. Broker/Dealer (XBD) is one of the strongest sectors again. All is well with the market. We'd get out now. Sell in May and go away sounds about right." At the time, Broker/Dealer (XBD) was trading at 267.
Since XBD wasn't leading any rallies this year, we were worried. On July 16, we said "We're just waiting for Broker/Dealer (XBD) to start leading the market south. Notice that XBD -- Zone 4 over both 10 and 90 days -- has chosen not to participate in this most recent rally...One thing that could send XBD reeling is a rally in bonds. The financials usually do well when yields are rising, and it looks like the peak in yields has been reached for the short term. Keep a close eye." At the time, Broker/Dealer (XBD) was at 262.
A week later, we got the sign we were looking for. We titled our July 23 issue "Time For Puts." We said "Broker/Dealer (XBD) has broken down. As bond indexes have rallied back to 90-day neutral, the brokers have retreated down into Zone 3. Now XBD stands as one of the weakest sector indexes, over both 90 days and 10 days. We think the market follows the brokers. That means it's time to buy puts on the market and certain sectors." At the time, Broker/Dealer (XBD) was at 249.
We don't think XBD has bottomed yet. Should be soon. Right now, Broker/Dealer (XBD) is at 214. That's down 20% since we said to sell in May and go away.
Send us an email and we send you a report containing all our comments about Broker/Dealer (XBD) so far this year.
Saturday, August 4, 2007
Bonds '07
We watch for bond ETFs and yield indexes to reach opposite extremes around the same time. Yield indexes tend to max out further from their respective means than do bond ETFs. When bond-and-yield extremes are reached, the market is about to change direction.
This year, we've had two full reversals from the bonds and yields. On January 29 we noted that bond ETFs were more than two standard deviations below their respective means, while yield indexes were more than three standard deviations above their respective means. We said "So it appears the bonds are reaching extremes. Further moves into the extreme Zones by yields and bonds could translate into serious losses for the market this week." At the time, the 30-Year Bond (TLT) ETF was at 86.91, while the 10-Year Interest Rate (TNX) index was at 48.79.
The turnaround happened quickly, so that reversion to the mean was already under way by weekend comment time. But the DYR Report on March 12 clearly detailed a serious reversal in the bond ETFs (now heading down again) and yield indexes (now heading up again) that happened during trading the previous Friday. At the time, 30-Year Bond (TLT) was at 89.4, while the 10-Year Interest Rate (TNX) was at 45.89.
The first move sent TLT (bonds) up 3%, while TNX (yields) dropped by 5%. Those are big moves for the bond-and-yield issues. Hard to trade, but they move markets.
The second reversal triggered the current market downdraft. On May 29, we said "The interest-rate indexes may have peaked last week too. All three durations are near 100% overbought over both 10 and 90 days. We've seen them higher before, but not with this much unity. Time to sell." At the time, 30-Year Bond (TLT) was at 86.43 while 10-Year Interest Rate(TNX) was at 48.61.
Extremes -- at the bottom for yield indexes and at the top for bond ETFs -- have not been reached yet for this cycle. This week, 30-Year Bond (TLT) is at 87.25, while 10-Year Interest Rate (TNX) is at 47.
This year, we've had two full reversals from the bonds and yields. On January 29 we noted that bond ETFs were more than two standard deviations below their respective means, while yield indexes were more than three standard deviations above their respective means. We said "So it appears the bonds are reaching extremes. Further moves into the extreme Zones by yields and bonds could translate into serious losses for the market this week." At the time, the 30-Year Bond (TLT) ETF was at 86.91, while the 10-Year Interest Rate (TNX) index was at 48.79.
The turnaround happened quickly, so that reversion to the mean was already under way by weekend comment time. But the DYR Report on March 12 clearly detailed a serious reversal in the bond ETFs (now heading down again) and yield indexes (now heading up again) that happened during trading the previous Friday. At the time, 30-Year Bond (TLT) was at 89.4, while the 10-Year Interest Rate (TNX) was at 45.89.
The first move sent TLT (bonds) up 3%, while TNX (yields) dropped by 5%. Those are big moves for the bond-and-yield issues. Hard to trade, but they move markets.
The second reversal triggered the current market downdraft. On May 29, we said "The interest-rate indexes may have peaked last week too. All three durations are near 100% overbought over both 10 and 90 days. We've seen them higher before, but not with this much unity. Time to sell." At the time, 30-Year Bond (TLT) was at 86.43 while 10-Year Interest Rate(TNX) was at 48.61.
Extremes -- at the bottom for yield indexes and at the top for bond ETFs -- have not been reached yet for this cycle. This week, 30-Year Bond (TLT) is at 87.25, while 10-Year Interest Rate (TNX) is at 47.
Housing '07
We're prepared to sell the Housing (HGX) index when it rallies to an extreme. We don't care to own it during rallies, because we think the trend is down.
This year we've recommended shorting housing twice. The first time we recommended shorting the index twice in three weeks, first on January 22 -- "Housing (HGX) is up near Zone 6, where it's a sell now" -- around 239, and two week later on February 5 -- "Housing (HGX) has hit Zone 6 over both 10 and 90 days" -- at 255. The buy-back recommendation for those two shorts came on April 9 -- "Housing (HCX) remains in Zone 1" -- with HGX at 218, which represented declines of 9% and 14%.
The second time we sold HGX was on June 21, when the headline of the DYR Report was "Start Buying Puts." We said "...we'd short Housing (HGX) again while it's around 90-day neutral. When we do make it back to Zone 1 this year, we think the housing stocks will be the downside leader." At the time, HGX was trading at 232.
The buy-back recommendation hasn't been made yet. On July 23 we said "The real-estate indexes, Dow Jones REIT (DJR) and Housing (HGX), are about halfway through Zone 2 and on their way to Zone 1." At the time, HGX was trading at 208, down about 10% since the short.
Going into this week, HGX stands at 175. That's down about 25% since the short.
Send us an email and we'll email you our special report containing all the quotes this year in the DYR Report that pertain to housing.
This year we've recommended shorting housing twice. The first time we recommended shorting the index twice in three weeks, first on January 22 -- "Housing (HGX) is up near Zone 6, where it's a sell now" -- around 239, and two week later on February 5 -- "Housing (HGX) has hit Zone 6 over both 10 and 90 days" -- at 255. The buy-back recommendation for those two shorts came on April 9 -- "Housing (HCX) remains in Zone 1" -- with HGX at 218, which represented declines of 9% and 14%.
The second time we sold HGX was on June 21, when the headline of the DYR Report was "Start Buying Puts." We said "...we'd short Housing (HGX) again while it's around 90-day neutral. When we do make it back to Zone 1 this year, we think the housing stocks will be the downside leader." At the time, HGX was trading at 232.
The buy-back recommendation hasn't been made yet. On July 23 we said "The real-estate indexes, Dow Jones REIT (DJR) and Housing (HGX), are about halfway through Zone 2 and on their way to Zone 1." At the time, HGX was trading at 208, down about 10% since the short.
Going into this week, HGX stands at 175. That's down about 25% since the short.
Send us an email and we'll email you our special report containing all the quotes this year in the DYR Report that pertain to housing.
Golds '07
We want to buy gold stocls when they're more than two standard devaitions below thier respective 90-day means, and sell them when they're two standard deviations above their respective means. We like gold, so we might even buy at one standard deviation below the mean.
We talked about buying the Gold/Silver (XAU) index around 135 a number of times this year. When we said it was time to take profits, the index was around 158. That's 15% to 20% profit, on each purchase we made.
Here are the five long XAU recommendations we've made so far this year:
-- On January 8, we said "..if you didn't get long when Gold/Silver (XAU) slid through 90-day neutral last week, now's a good time." At the time, XAU was at 133.
-- On March 19, we said "Is this the time to buy gold stocks again? We say yes." At the time, XAU was at 133.
-- On May 7, we said "The golds are the weakest group overall -- that's where we'd look for bargains now." At the time, XAU was at 142.
-- On May 14, we said "Gold/Silver (XAU) looks like a good buy here." At the time, XAU was at 140.
-- On May 29, we said "...it's time to take another stab at the gold indexes. The market is turning and Gold/Silver (XAU) has hit Zone 2. Time to buy." At the time, XAU was at 136.
Here's our only sell recommendation this year:
-- On July 23, we said "...it's time to take profits on Gold/Silver (XAU). The index is in Zone 6, just barely, over both 90-days and 10-days. It's hard to see the dollar falling lower. If the market tanks, golds will fall too." At the time, XAU was at 158.
Send us an email and we'll send you a report that includes all the comments we've made about the golds this year.
We talked about buying the Gold/Silver (XAU) index around 135 a number of times this year. When we said it was time to take profits, the index was around 158. That's 15% to 20% profit, on each purchase we made.
Here are the five long XAU recommendations we've made so far this year:
-- On January 8, we said "..if you didn't get long when Gold/Silver (XAU) slid through 90-day neutral last week, now's a good time." At the time, XAU was at 133.
-- On March 19, we said "Is this the time to buy gold stocks again? We say yes." At the time, XAU was at 133.
-- On May 7, we said "The golds are the weakest group overall -- that's where we'd look for bargains now." At the time, XAU was at 142.
-- On May 14, we said "Gold/Silver (XAU) looks like a good buy here." At the time, XAU was at 140.
-- On May 29, we said "...it's time to take another stab at the gold indexes. The market is turning and Gold/Silver (XAU) has hit Zone 2. Time to buy." At the time, XAU was at 136.
Here's our only sell recommendation this year:
-- On July 23, we said "...it's time to take profits on Gold/Silver (XAU). The index is in Zone 6, just barely, over both 90-days and 10-days. It's hard to see the dollar falling lower. If the market tanks, golds will fall too." At the time, XAU was at 158.
Send us an email and we'll send you a report that includes all the comments we've made about the golds this year.
Oils '07
We like the oils when they move one standard deviation below their respective 90-day means. We don't want to wait until they move two standard deviations below their respective means -- if they do, we'll buy more. We'll sell only once these issues move significantly beyond two standard deviations above their mean prices.
If you bought the oils when we said to in January, you would have made 50% on oil service and 27% on large oils by the time we said to get out in late June.
We saw a great opportunity to get into the oil issues back on January 16. In fact, that week's issue of the DYR Report was titled "Oil Opportunity." We said: "The rotation out of oils and into techs has been almost too perfect. Nasdaq 100 (NDX) has rallied back into Zone 5 as the oil service indexes have slipped into Zone 2. Both groups are due for a little reversion to the mean. But we'd buy the oils before we'd sell the techs." More: "Three months ago, the DYR Oil Sectors also made Zone 2. Two months later, those DYR Sectors were solidly in Zone 6." At the time, the Oil (XOI) index was at 1,11o and the Oil Service (OSX) index was at 185.
We noted the strength in the oils as the year progressed, but we didn't really issue a sell signal until the entire stock market turned down in June. On June 25, we wrote: "All of the broad-based indexes have pulled back into Zone 4. The oil indexes remain in Zone 6. Gas prices have declined recently. If the oils pull back too, we'd buy them again at 90-day neutral. There's still a war in Iraq. But the market has rallied right along with the oils, so we'd expect it to pull back with them as well." At the time, Oil (XOI) was at 1,412 and Oil Service (OSX) was at 278.
The gain in XOI was 27% and the gain in OSX was 50%. Send us an email and we'll send you a report that contains all of our comments about the oils so far this year.
If you bought the oils when we said to in January, you would have made 50% on oil service and 27% on large oils by the time we said to get out in late June.
We saw a great opportunity to get into the oil issues back on January 16. In fact, that week's issue of the DYR Report was titled "Oil Opportunity." We said: "The rotation out of oils and into techs has been almost too perfect. Nasdaq 100 (NDX) has rallied back into Zone 5 as the oil service indexes have slipped into Zone 2. Both groups are due for a little reversion to the mean. But we'd buy the oils before we'd sell the techs." More: "Three months ago, the DYR Oil Sectors also made Zone 2. Two months later, those DYR Sectors were solidly in Zone 6." At the time, the Oil (XOI) index was at 1,11o and the Oil Service (OSX) index was at 185.
We noted the strength in the oils as the year progressed, but we didn't really issue a sell signal until the entire stock market turned down in June. On June 25, we wrote: "All of the broad-based indexes have pulled back into Zone 4. The oil indexes remain in Zone 6. Gas prices have declined recently. If the oils pull back too, we'd buy them again at 90-day neutral. There's still a war in Iraq. But the market has rallied right along with the oils, so we'd expect it to pull back with them as well." At the time, Oil (XOI) was at 1,412 and Oil Service (OSX) was at 278.
The gain in XOI was 27% and the gain in OSX was 50%. Send us an email and we'll send you a report that contains all of our comments about the oils so far this year.
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