Making Money Alert
Bouncing about the 50-Day Average
02/03/2010
Have the last couple of weeks of trading been the start of a typical correction, or is it just a short-term pullback? Or, is what we’re seeing the start of the big, bad sell-off everyone fears? I think it’s much too early to tell for certain, but one way to monitor things objectively is to use the 50-day moving average.
The 50-day moving average is a great technical tool that can help you assess the short-term bias of the market. If we look at the chart below of the S&P 500 Index, we see that in January the index fell below its 50-day moving average (blue line) for the first time since November.
During the past week, we’ve seen the S&P 500 move back up toward the 50-day average, indicating that the recent selling in stocks may be over -- at least in the very short term. In times like these, when the market is basically bouncing about its 50-day average, it is really important to keep a close eye on this indicator. By doing so, you’ll get a good read on which way this market wants to go.
My assessment here is that if this market fails to recapture the 50-day moving average during the next week or two, we could be looking at the possibility of a wider correction. But, if we move above the 50-day moving average in the next week or two, then we will just chalk up the January selling to profit taking and normal corrective action after the huge 2009 market run.
Whatever happens, the 50-day moving average will be the key to understanding the market’s bias, and understanding the ebb and flow of the equity markets is the first step toward making solid investment choices.
The Taxes Are Coming, the Taxes Are Coming!
President Obama just submitted a new, 10-year federal budget that has me very worried. The primary reason for my concern is tax hikes. As I expected, the mammoth $3.8-trillion budget for the next fiscal year raises taxes on businesses and upper-income households by $2 trillion over 10 years. And after what could be called very minor spending cuts, the country still will face $8.5 trillion in added debt during the next decade.
The budget for fiscal 2011 imposes nearly $1 trillion in tax increases on families with incomes above $250,000 during the next 10 years, and it does so by allowing the Bush tax cuts to expire. That’s income, mind you, and not take-home pay or profits. That means a small businessperson with income of $250,000 or more would pay a much bigger portion of that income to Uncle Sam. And because most of the jobs created in this country are produced by small businesses penalized by the new taxes, I think we can safely say that this budget is not conducive to job growth.
How much will taxes go up? Well, the two top income-tax brackets would rise to 36% and 39.6%, from 33% and 35%, respectively. For families earning more than what the president thinks is a mystical sum of $250,000 per year, capital gains and dividend tax rates would rise to 20% from 15%. According to The Wall Street Journal, upper-income families would face $969 billion in higher taxes between 2011 and 2020.
To put it quite simply -- the taxes are coming, the taxes are coming, and it’s your job as a smart citizen to make sure you take steps to keep your tax liabilities as low as legally possible.
If you don’t already have a good CPA, then I highly recommend you consult with one soon, especially now that tax season is here.
Watch My Live MoneyShow Webcast
As we begin 2010, we are entering what likely is a new era in the investing and financial landscape. Now is the time to prepare and execute a safe and profitable investment plan for the year ahead.
It is with that in mind that I proudly invite you to tune in for this LIVE Webcast presentation, titled “ETF Strategies in a Difficult Market.” This presentation will help you gain the knowledge and critical insights you’ll need to make smarter, more informed investment decisions in 2010 and beyond.
Viewing is free, so please click on the link here for more details and to register for this and other live Webcast events, which will come to you from the upcoming World MoneyShow Orlando.
You also can visit MoneyShow.com to see the comprehensive event schedule, and to register free to be a part of this all-new for 2010 World MoneyShow Orlando Webcast event series. I look forward to connecting with you.
ETF Talk: Not Your Father's Precious Metals -- Part II
The rollout of exchange-traded funds (ETFs) focused on precious metals other than gold and silver is well worth bringing to your attention. Last week, I featured a fund that invests in platinum and this week, I will introduce you to a fund that is tied to a different precious metal, palladium.
It would not surprise me in the least if you never have invested in palladium or if you did not know that the exchange-traded fund, ETFS Physical Palladium Shares (PALL), hit the market last month. I have not recommended PALL, but I am impressed that its average daily trading volume has soared to 382,000 in less than a month. I normally look to see if a fund has average daily trading volume of at least 100,000 shares before even considering its mention, and PALL is almost four times that level in just its first month of existence.
PALL, issued by ETFS Palladium Trust, is designed to reflect the performance of the price of palladium bullion, less the trust’s expenses. The ETF’s shares are aimed at investors who want a cost-effective and convenient way to invest and to gain exposure in palladium, a rare, silvery-white metal that is used in electronics and in catalytic converters for automobiles.
The fund is down slightly since opening at $43.93 on Jan. 14, before closing at $43.25 on Monday, Feb. 1. However, it jumped 3.73% in a single day on Feb. 1. Also on that day, PALL’s percentage gain outstripped the performance of a prominent fund focused on gold, the SPDR Gold Shares (GLD), up 2.26%, and a fund targeting silver, the iShares Silver Trust (SLV), up 2.89%.
Beware that the rise and fall of each precious metals fund does not exactly mirror the performance of the precious metal that it attempts to track. The price of gold on Feb. 1 edged up 2.05% to reach $1,105.20 an ounce for the day, while silver jumped to $16.67 an ounce for a gain of 2.96%. Meanwhile, the actual price of palladium rose to $429, up $15 an ounce, or 3.62%. While those returns are not precise matches with their related funds, they still are reasonably close.
In times of inflation and market uncertainty, I find precious metals especially appealing. I actually recommended SLV Monday to subscribers of my ETF Trader service. Much like palladium, silver has fallen a bit lately, but I expect a reversal here soon. If you want to invest in a precious metal that has the potential to outperform the wider equity markets, precious metals ETFs give you that opportunity. Remember, however, that PALL and all precious metals ETFs can be very volatile -- so be careful.
If you want advice about which ETFs to buy and to sell, please sign up for my ETF Trader service by clicking here. As always, I am pleased to answer your questions about ETFs, so do not hesitate to reach out to me if you have one. To send an ETF question to me, simply click here. You may see your question answered in a future ETF Talk.
Mutual Funds Are Hazardous to Your Wealth -- 2/9/2010
The market sold off sharply in the second half of January, and this rapid descent has me very concerned for investors holding large allocations to domestic, international and high-yield mutual funds.
What we could be seeing here is the start of a more prolonged correction in the markets. The end of this market rally -- what I call the equity endgame -- is one of the 2010 investment themes that I have been talking about recently on my radio show.
Now more than ever, I believe it’s crucial that you take a hard look at your portfolio to determine which of your mutual funds are most susceptible to a widespread market decline.
Remember, it was just over a year ago that most investors sustained serious damage to their wealth -- damage that, in many cases, will be extremely difficult to overcome. Certainly Wall Street titans, reckless lenders and irresponsible home buyers all deserve their share of the blame for the market’s meltdown. But one part of the financial world that hasn’t received much scrutiny for its role in that evaporation of investor wealth is the mutual fund industry.
In my latest special report, "Mutual Funds Are Hazardous to Your Wealth," I expose the five serious flaws inherent in these investment vehicles. I also tell you why exchange-traded funds (ETFs) are far superior alternatives to traditional mutual funds.
Some of the reasons why I love ETFs are their low cost, diversification and transparency -- virtues key to any successful portfolio. For most people looking to grow their serious money over the long term, ETFs are quite simply the best investment vehicles available today.
To get your FREE special report, "Mutual Funds are Hazardous to Your Wealth," simply click here.
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
The Wisdom of On Liberty
“If all mankind minus one were of one opinion, and only one person were of contrary opinion, mankind would be no more justified in silencing that one person, than he, if he had the power, would be justified in silencing mankind.”
--John Stuart Mill, On Liberty
The philosopher, whose work is nearly synonymous with utilitarianism, realized the virtue of a dissenting opinion in this most insightful observation. The next time you find yourself disagreeing with the majority of your peers, try to keep Mill’s notions from On Liberty in your mind. I suspect that by doing so, you’ll feel a lot more comfortable in your dissent.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to ask Doug.
P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.