We have been writing about the markets and the economy for years and years. We warned about the sub-prime mess, we warned about overspending, we told you not to use your home as the ATM machine and we have warned about other numerous pitfall of the financial world. Today, rather than pontificate about further warnings, it is time to talk about what you can do to stop the financial bleeding. These suggestions are simple and really save you money, so here it goes.
First of all, for all of our readers with account managed by broker-dealers that don’t charge commissions and do charge a fee for assets under management, fire you broker-dealer. Why, well because if you paid full commission on every trade you made, you would likely pay far less annually than the management fees assessed to you account. Right there, you have a huge saving. Secondly, stay involved with your money. If a broker advises that you buy something, look it up before buying. Google is a wonderful place to start. Further, if you don’t understand the concept, pass on the deal. Only buy stock in companies that have growth prospects, earn money in the industry that they work in, have insider ownership (hey if insiders don’t want to own the company, why would you?) and preferably pay a dividend. Third, never never put a tax deferred annuity in a retirement account. That is just plain stupid. Read the description tax deferred…that means no taxes now. It also means that at some time in the future, you will have to pay taxes on the money and at that time, the tax will be assessed as ordinary income. This is also true for your retirement vehicles. When you draw it out, it is ordinary income. Anybody telling you to put an annuity into your 401K is an idiot, immediately transfer your funds elsewhere. Thirdly, insurance products are used to deflect possible loss and manage risk, not to make your heirs rich. If you have an obligation to educate your children for the next, say 10 years and you can calculate that cost in the future, add a little for good measure and there it is, your life insurance need for the next 10 years. You can buy this annual renewable term policy to cover the risk that you will not be there to pay for the children’s educational needs. We understand that we are simplistic but that is the point, don’t make it complicated. Solve for your risk and you are off to some real savings. As to inheritance tax, who cares, you will be dead anyway, let you heirs fight over that one. A very wise man once said “financial planning is successful if the last check you issue to the undertaker bounces.”
We are only getting started but you can pick up the ball from here. Calculate your needs and risks. Don’t believe sales people, they make commission on those products. The highest commission products are insurance products like annuities and life insurance products. If you own one of these products and want your money out, you will find out how much the product is worth and how much you actually paid for costs. Now on to mutual funds. Why would anybody invest in a vehicle that restricts the inflow and outflow of your investment? It is outrageous that funds continue to believe that 4:00 is a magic time when all markets close. First of all, we live in a 24 hour world, secondly, if the market is crashing around you, why do you have to wait for the dead low to liquidate. Don’t you think that it could be calculated on an hourly basis? If you can’t be bothered in learning about deep discount brokers and the markets, stuff your money under the mattress in your bedroom, it probably will be safer there. You could always give it to your children or some needy person.
Monday: December income and consumption is released at 8:30, December construction spending is released at 10:00 and January ISM report is released at 10:00. Tuesday: January auto sales. Wednesday: Challenger, Gray & Christmas January job-cut report. Thursday: 4th quarter productivity is released at 8:30, December factory orders are released at 10:00, the Bank of England releases its interest rate decision, The European Central Bank releases its interest rate decision, and Philadelphia Fed President Plosser speaks. Friday: January nonfarm payroll and unemployment rate is released at 8:30.
The US Dollar index gapped higher in the Friday session. Although it is not unusual to see gaps in this chart there is something worrisome about this formation. All the indicators that we follow herein continue to issue a buy-signal albeit getting close of overbought readings. The 5-day moving average is at 85.512. The top of the Bollinger band is at 87.367 and the lower edge is seen at 82.269. There are two uptrend lines on the chart that should act as support for the US Dollar index. The first line is at 85.17 and the longer line is at 84.395, these numbers are for the Monday session. The weekly uptrend line is at 84.382. We are above the Ichimuko clouds for the daily and weekly time-frames, but remain below the clouds on the monthly time-frame.
The S&P 500 needs to stay above 797.35 or risk a trip to the November lows. The good news is that we seem to be range-bound. So long as we remain in this holding pattern, we aren’t going to go too far. All of the indicators that we follow herein are pointing lower. The 5-day moving average is at 841.35. The top of the Bollinger band is at 935.80 and the lower edge is seen at 786.43. We are below the Ichimuko clouds for the daily, weekly and monthly time-frames. The longer the market remains in this range, the more violent the breakout will be. Unfortunately, we will not know which way the break will occur until it begins. Remember, just go with the trend although trading against the trend, of late, has been the way to make money. That will change once the market breaks out of its range.
The NASDAQ 100 looks much like the S&P 500’s chart. We seem to be stuck in a range. All the indicators that we follow herein continue to issue a sell-signal. The 5-period moving average is at 1196.35. The top of the Bollinger band is at 1273.49 and the lower edge is seen at 1134.69. We find the daily chart right in the middle of the Ichimuko cloud. We are below the Ichimuko clouds for both the weekly and the monthly chart. We have a mechanical buy-signal, which was issued on Wednesday. We do caution that if we close below 1133.13, we will open the door to the November lows. On the other hand should we trade above 1287 we will break out to the upside and open the door to 1389.
The Russell 2000 remained under pressure in the Friday session. All the indicators that we follow herein continue to issue a sell-signal. The 5-day moving average is at 453.36. The top of the Bollinger band is at 466.80 and the lower edge is seen at 421.40. We are below the Ichimuko clouds for the daily time-frame. The chart on the Russell 2000 is less telling than that of the NASDAQ 100 or the S&P 500, however; we note that we must stay above 412.40 or risk a trip to the November lows. On the upside, should we close above 474.20, we will break to the upside. Again, we are range-bound.
Crude oil is forming a base, a long base. Remember, the longer we go sideways the bigger the breakout move will be. All our indicators are confused, really going nowhere illustrating the obvious seen in the price action of crude oil. The 5-period moving average is at 42.51. The top of the Bollinger band is at 51.87 and the lower edge is seen at 37.90. If we had to guess, we would say that the breakout will be to the upside. We are below the Ichimuko clouds for the daily, weekly and monthly time-frame. Just remember we need to stay above 32.48 or risk a trip to 25. Yikes! If the market were to rally just to the 38% retracement line, we would find ourselves at 75.69. The chart shows that 54 to 58 will be difficult for the market get thru. Should we gap above these levels we could easily go for the 38% retracement number.
April gold needs to trade above 938.20. We are extremely overbought at this time and need to consolidate some of the recent advances. We believe that the market will retreat to the uptrend line at 881.00. All the indicators that we follow herein are overbought and continue to point higher. The 5-day moving average is at 907.40. The top of the Bollinger band is at 928.48 and the lower edge is seen at 796.00. We are above the Ichimuko clouds for the daily time-frame but we are in the clouds for the weekly time-frame and above the clouds for the monthly time-frame. That is about as clear as mud. One thing all three time-frames have in common is that they are all extremely overbought. Support should be seen at 897 and then at 855.