Tag Archives: seeking

Retailers Need A Christmas Miracle

XRT is showing huge weakness in a number of areas. I think the selloff in the sector is just getting started and that XRT is toxic. There are individual names I like in retail but the ETF should be avoided or shorted. The recent market selloff has hit a number of sectors and names but more than most, the retailers, shown here using the SPDR S&P Retail ETF (NYSEARCA: XRT ), have been crushed. Weak earnings reports from just about everyone includi ng Macy’s (NYSE: M ), Nordstrom (NYSE: JWN ), Cabela’s (NYSE: CAB ) and Fossil (NASDAQ: FOSL ), ju st to name a few, have investors on edge and selling anything and everything retail related of late. The chart below shows just how ugly things have gotten and with the Christmas shopping season upon us, one may expect XRT to outperform. However, I’m not so bullish. (click to enlarge) The sector as a whole has been struggling since the market hit its highs back in July. XRT failed to break out and make a new high at that time and that signaled the top in a big way. Since that time we’ve seen an epic break down and the XRT and individual names alike have been pummeled to varying degrees. The culprit has been terrible earnings reports from a number of retailers as pockets of strength are very difficult to find these days and that means investors are selling first and asking questions later. Certainly, this is not the sign of a healthy sector. We’ve seen weakness in all sectors within the broader retail industry including handbags, general line retailers, apparel, and the list goes on. No one has been spared from the recent rout and it seems that the Christmas shopping season is set to be weaker than last year’s. Black Friday must be strong or the XRT could fall off a cliff in the coming weeks because Q3 earnings from various retailers have done nothing but fuel pessimism. Looking at the chart above, the daily timeframe looks like it is trying to bottom. There is a lot of support in the $40 to $42 area from a previous channel XRT eventually broke out of so there is some hope for bulls there that if the channel can hold, XRT may form a base in this area. In fact, the momentum indicators are showing some divergences as lower lows in price are not being met with lower lows in momentum, a bullish sign that the selling is abating somewhat. That is certainly not a reason to buy the ETF but it does mean that if XRT can stop the bleeding, we have a potential base forming in the short term. Over the long term, the picture is much less rosy. This chart shows XRT on the weekly time frame over five years and as we can see, the longer term is much more bearish. (click to enlarge) XRT blasted through the uptrend that was in place form the 2011 lows earlier this year, a very bearish development. It has also been making new lows in the momentum indicators since April, well before the actual top in price occurred. This was a signal to get out as buying interest was waning significantly. We continue to see momentum on the weekly time frame coming in very weak and in a bearish range and that is extremely bearish for the stock right now over the medium term. The same support levels apply here but the weekly time frame looks a lot worse than the daily chart. That would indicate there is the potential for some mean reversion in the short term but longer term, a lot of damage needs to be repaired before XRT can move higher. And given the rock bottom sentiment and terrible fundamentals right now, that seems like a tough road ahead. If we compare relative strength in the XRT to the broader market – as represented by the SPDR S&P 500 Trust ETF ( SPY) – we can see the selloff is not tied completed to the broader weakness in equities. This is a story of sector-specific weakness and that also bodes particularly poorly for XRT heading into the holiday season. (click to enlarge) We can see that XRT goes through very clear trends against the broader market of outperformance and underperformance and has been doing so for years. The problem is that the recent underperformance has been sharp and brutal as relative strength broke through the support that was formed for almost all of 2014. In other words, retail couldn’t really be weaker right now as it slices through its former uptrend and support levels including relative strength. If we look at the momentum indicators on the relative strength chart, they are horrendous. Momentum continues to get more and more oversold instead of bouncing and that is one of the most bearish things that can occur. In short, the latest round of underperformance for XRT looks set to continue and that looks bad for the ETF heading into Q4 reports. Fundamentally, I think this is also the wrong time to buy XRT. December is typically a pretty strong period for retail stocks because of the Christmas shopping season but this year, sentiment has flipped entirely. Anything retail-related is getting crushed even when decent results are posted. Bellwethers like Macy’s and Nordstrom were decimated on relatively small misses/guidance cuts simply because sentiment is beyond negative at this point. In short, the environment for retail stocks is so unfavorable right now that I don’t think it matters what news comes out; it is all being taken as bearish at this point. I think there are individual names within the sector that can be bought including the ones I linked to above. Some stocks have been beaten down like they are going out of business and that is simply not the case. My favorite pick in the retail space right now is Macy’s but I like others as well. What I don’t like is the sector as a whole as weaker names are driving the XRT lower and I think all evidence is pointing to more downside action in XRT. Sentiment is showing no signs of bottoming, the fundamentals are weak after a rough Q3 reporting season and the charts really couldn’t be worse. If you want to be in retail, please don’t buy XRT; pick the names you like the most and go that way because this sector is falling like a rock.

The Proper Intellectual Framework For Assembling An Investment Portfolio

Summary Making asset allocation decisions using a backward looking framework based on the global financial portfolio ensures mental rigor. Investors asset allocation decisions should take into account current conditions. Investors will need to adjust expectations and allocations as equity and bond returns will likely be lower than in the past. We’ve written a several articles in the past about what investments and assets classes shouldn’t be in your portfolio such as commodities , currency funds , and bank loan funds . We also wrote a few articles about asset classes that should be in your portfolio such as international bonds . But, we’ve never discussed how to assemble a comprehensive, well diversified portfolio. It’s important to note we are talking about an investment portfolio so we will not be considering cash which would be part of someone’s savings portfolio. In this ongoing series of articles we’ll be discussing each of the asset classes we use to assemble client portfolios. Over the next few weeks we’ll be discussing each asset class in depth and talking about what risk and reward attributes they bring to a portfolio. For this series of articles we’ve divided the asset classes into three conceptual categories: low risk, medium risk, and high risk. The links to previous articles are below. Low Risk Medium Risk High Risk How to Assemble a Comprehensive Investment Portfolio Every Investor’s Starting Point When assembling your portfolio from all the worthwhile asset classes it’s important to keep your starting point in mind. Many investors probably utilize a forward looking mental framework. They think well, I have $100,000 to invest so I’ll allocate $x to asset class A, $y to asset class B, etc. I think a better way to look at things is to take a backward looking point of view. Start with what a portfolio of all global investable financial assets would look like. From the paper in the previous link, which was published in 2011, we can see the breakdown of all financial assets in the world is as follows. We removed some assets like hedgefunds which mostly just hold duplicative positions in equities and bonds which are already included in the global portfolio. We also removed private equity funds because they are not generally available to most investors. It’s also arguable whether or not they would constitute a distinct asset class. After all, they are just funds made up of equity investments. However since those equity investments are not publicly tradable it’s likely that private equity should be considered a separate, albeit expensive to invest in, asset class. In any case, investors should use the adjusted global financial asset portfolio as a starting point and then make changes based on their preferences and goals. For example, the global portfolio is a very bond heavy. An investor with a higher risk tolerance and a desire for higher growth would likely find it much better to overweight equities and underweight government bonds as compared to the global portfolio. Investors who’ve read our articles on commodities and high yield bonds and know that neither asset provides a compelling risk versus reward ratio would know to skip allocations to those assets. An investor with extensive private real estate holdings may elect to skip or reduce their real estate exposure. Don’t Ignore Current Conditions It’s also important to not ignore current conditions when making asset allocation decisions. For example, with short term US interest rates at zero it is highly unlikely that interest rates along the entire curve will fall very far (if at all) thus US bond returns are likely to be muted during the next few years as the Fed slowly begins to raise rates. On the other hand many foreign central banks are still keeping interest rates low or negative. Thus, investors desiring both the safety of government bonds and higher returns may find overweighting currency hedged foreign bonds a good idea. Likewise, a conservative investor planning for retirement who previously may have liked a 50/50 balanced stock and bond portfolio might find that no longer adequate to meet their return goals. As we said bond returns are likely to be below historical averages and with the US stock market either fairly or perhaps slightly overvalued equity returns are likely to be average at best going forward. Therefore, our conservative investor may need to adjust his portfolio, however uncomfortable that may be, to be more aggressive in order to meet his retirement goals. The point of all of this is that deviating from the global financial portfolio is fine. In fact, I’m not sure there would be many investors for whom the global financial portfolio would be appropriate for anyway. What investors need to do, however, is make sure that there are logical reasons for choosing the asset weightings in their portfolio. Summary In summary, an investor should start with the global financial portfolio and then in a logical manner work backward in adjusting the asset allocation of the portfolio to meet their investment goals. I believe this method is most helpful as it forces investors to put more thought into why they are making the asset allocation decisions they are.

Hedge Funds Abandon SunEdison: 3 ETFs Feeling The Pain

SunEdison (NYSE: SUNE ), once the darling of hedge fund managers, has lost all its shine after being on a downward trend for some time. According to the recent 13-F filing with the SEC, several hedge fund managers have reduced their stake in SunEdison. Fund manager David Einhorn’s Greenlight Capital slashed its position in the stock by 25% while Dan Loeb’s Third Point and Stephen Mandel’s Lone Pine Capital liquidated their entire stake in the stock. As a result, SunEdison tumbled as much as 38.4% in Tuesday’s trading session following a 7.5% decline on Monday. This has raised a panic alarm in the ETF world, especially among funds having the largest allocation to this solar firm. These products are, namely the Market Vectors Solar Energy ETF (NYSEARCA: KWT ) , the Guggenheim Solar ETF (NYSEARCA: TAN ) and the Market Vectors Global Alternative Energy ETF (NYSEARCA: GEX ) . While KWT and TAN target the solar space of the alternative energy world, GEX provides global exposure to the companies that are primarily engaged in the business of alternative energy. The trio currently has about 4.6%, 2.6%, and 1.5% allocation in SunEdison, respectively. American firms occupy half of TAN and GEX, while KWT allocates 30.5% of assets in the US. SunEdison has been witnessing a steep downfall since its earnings announcement on November 9 after the closing bell. The stock has plummeted over 59% to date since it incurred a wider loss than expected in the third quarter. Its estimates are moving south with earnings expected to be down 18.5% in the current year and 2.5% in the next. Further, the company is expected to post negative earnings growth of 240.4% compared with an industry average growth of 9.3%. Moreover, SunEdison has a Zacks Rank #3 (Hold) with a poor Growth and Value style score of ‘F’ each and Momentum style score of ‘D’. All these suggest big trouble for the company in the future and thus the three ETFs mentioned above might see pain ahead. Over the past five days, KWT and GEX shed over 3% each while TAN lost much higher by about 7.4%. The alternative energy space was beaten down badly due to the plunge in oil price that is taking a toll on the space with solar being the worst hit. This is because of investors’ misconception that oil price and solar market fundamentals are directly related. Otherwise, the industry fundamentals are still encouraging with growing demand for renewable sources, efficient alternative energy application, and Obama’s ‘Climate Change Action Plan’. Original Post