Spanning macroeconomic realms, these indicators shed light on employment patterns, inflationary forces, interest rate movements, market volatility, and technical trend analysis. Collectively, they present a panoramic view of the market landscape, empowering investors and traders to navigate the intricate dynamics and fluctuations of the stock market with precision and insight.

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When trying to understand the intricate dynamics of the stock market, often requires an understanding of various indicators that can serve as crucial barometers of economic health and market sentiment. What are some key metrics that investors and traders use to navigate the terrain of the U.S. stock market with caution and strategic foresight? With the U.S. economy slightly off balance, the markets continue to soar, and this is not something out of the norm, but there are a few indicators that we need to take heed to. Additionally, the S&P 500’s notable upward trend at a steep angle prompts a closer examination of market risk and potential implications for investment strategies.

The unemployment rate plays a pivotal role in influencing the stock market’s trajectory due to its reflection of economic vitality. Market reactions to unemployment numbers are often driven by expectations about future economic conditions and the Federal Reserve’s response. Overall, the unemployment rate is a crucial gauge of economic health, shaping consumer behavior, corporate performance, investment strategies, and monetary policies that collectively influence stock market movements and sentiment.

A rising trend in the unemployment rate over the past three months indicates economic challenges and a potential slowdown. This trend can erode consumer confidence, reducing spending and impacting businesses across various sectors. Investors may become more cautious and risk-averse, potentially leading to increased market volatility and lower stock prices. Different industries and sectors may experience varying impacts, with sectors reliant on consumer spending likely facing more significant challenges.

Charting unemployment numbers like a stock chart provides a more visual representation that aids in identifying trends, patterns, and anomalies. Analysts can uncover insights into labor market dynamics by applying technical analysis techniques, such as trend lines and moving averages. Pattern recognition helps in identifying potential shifts or cyclical trends in unemployment trends. Utilizing charted unemployment data supports informed forecasting and decision-making processes.

The Consumer Price Index (CPI) and the Producer Price Index (PPI) are vital indicators that shed light on inflationary trends, which can significantly impact the stock market. Together, these indices provide a comprehensive view of inflationary pressures across the economy, influencing market sentiment and investment decisions.

Rising PPI signifies escalating input costs for businesses, including raw materials and production expenses, which can shrink profit margins unless offset by price increases for consumers. Investors evaluate companies’ ability to navigate cost inflation, impacting stock prices and industry performance.

Charting these indices allows for easier identification of inflationary cycles, potential inflection points, and long-term trends, aiding in forecasting market sentiment and economic conditions. By Charting CPI and PPI figures, you can see that it is suggesting another escalation in consumer prices, in this case, the obvious increase has been in oil and the price of gas, due to Ukraine drone strikes on Russian oil fields. This is possibly leading to reduced consumer spending and economic contraction, which could trigger stock market declines.

 

When the correlation between the 10-year Treasury yield and the 2-year Treasury yield becomes inverted, it is often interpreted as a signal of a potential economic downturn or recession.

 

This is a vital key and shows that politically we haven’t really solved the big economic issues since 2014, stemming from the housing market crash of 2008. The term then was that politicians were just “kicking the can down the road”. In other words, they are just avoiding taking a strong stance to solve the country’s economic problems. The economy has been in an inverted yield curve since July 2022. An Inverted Yield curve is when the 2-year Treasury has a higher Interest rate yield than the 10-year Treasury. So your question should be, “Why hasn’t the market crashed since then?” I can only attribute 2 reasons: good economic policies and the expansion of the economy with ‘AI’.

The level of pessimism reflects in the inversion when it reaches -.35 today it is -.37. And both the 10-year and 2-year yields are trending higher. These macroeconomic indicators should point your market sentiment toward negativity, but that isn’t the entire story. The optimism in the stock market is based on returns and the performance of market leaders in the stock market, such as The Magnificent 7.

This leads us to 2 very important indicators that are easy to understand: The VIX and understanding trendlines.

 

The VIX, also known as the CBOE Volatility Index, is a measure of expected market volatility and investor sentiment in the stock market. It is often referred to as the “fear gauge” because it tends to rise during periods of market uncertainty and decline when investors are more confident.

High VIX levels (typically above 18) suggest heightened volatility and uncertainty in the market. This can be indicative of investor fear or nervousness about potential market downturns or significant price swings. While low VIX levels (below 18) indicate lower expected volatility and a more complacent or confident market environment. This may signal investor optimism and a belief that market conditions are stable. Right now the VIX is currently at 12.93

The VIX is calculated by using a formula that takes into account the prices of various options with different expiration dates. It essentially calculates a weighted average of implied volatilities across these options to arrive at the VIX value.

If you are a swing trader trading options this is a vital tool, and traders need to consider that a low VIX is associated with lower implied volatility levels, which can lead to lower options prices.

Implied Volatility (IV) is a crucial component in options pricing models, such as the Black-Scholes model. I am a student of their theories on mathematical models of finance. It represents the market’s expectation of future price volatility for an underlying stock. Higher Implied Volatility the higher the option price and conversely Lower Implied Volatility makes the option price reflective of all the perceived levels of risk.

There are also other factors, that lead to the value of a particular option, and those are; the stock price, time to expiration, interest rates, and dividend yields; as well as market sentiment and news.

This brings us lastly to trendlines. Without explaining the details of how to draw your trendline we will focus on the 30-day Exponential Moving Average (EMA), it is a commonly used technical analysis tool that helps traders and investors identify trends and potential trend reversals in stock prices. EMAs react more quickly to recent price movements compared to simple moving averages (SMAs).

The 30-day EMA is a simple way to measure the trend of an underlying stock. If you want to get a measure of the market as a whole applying the 30-day EMA to the S&P 500 is a strong indication of how the market is performing. Once the stock price violates or breaks that trendline, there could be the possibility of a market reversal. When the stock is trading above the trendline it is on a positive trajectory and when it is trading below the trendline its trajectory is often negative.

The slope of the trendline also makes for a sign to read. If we continue to consider the S&P 500, because we are trying to measure the sentiment of the market as a whole, we can see that the slope of the S&P 500 is greater than 60 degrees. A steeply rising stock chart indicates strong bullish momentum and trend strength. It suggests that buyers are aggressively pushing the stock’s price higher, often accompanied by significant volume. A steep slope in the stock price, especially at a rate exceeding 60 degrees, typically signifies high volatility and increased risk. Such rapid price movements often result from heightened market speculation, significant news events, or abrupt shifts in supply and demand dynamics. Extremely steep slopes may suggest that the price movement is not sustainable in the long term. Such rapid price increases may not be supported by underlying fundamentals or market conditions, increasing the likelihood of a sharp reversal or price correction. This forces us to continue to look at the large macroeconomic indicators for bad news. When trading in this high atmosphere sea levels require one to look for any weakness that could lead to market capitulation.

Simple Trade Patterns will continue to provide more detailed analysis as we move forward on our trading journey. We will continue to be students of the omniscient market. And remember the market is NEVER WRONG!

 

 

Closed-end funds are a type of investment that always tends to fall under the radar yet they are high-dividend stocks that often pay monthly. Similar to mutual funds closed-end funds pool together different securities which allows you to buy them in a pooled investment.

One good trade strategy that many swing traders, day traders, and scalpers should heed is to put the majority of their funds into securities that provide earnings while they are trading and in between trades. Simply placing your funds in the money market where you are barely getting a return means that you are leaving a lot of money that sitting dormant from earning. All traders should have margin accounts. One of the values of margin loans is not just the borrowing of capital to make larger trades but to be able to hold a trade a little longer and not have to sell because you have found another good trade. Closed-end funds have a high level of margin to borrow against.

A closed-end fund is a type of investment vehicle that is structured as a publicly traded investment company by the Securities and Exchange Commission (SEC). Unlike open-end funds (commonly known as mutual funds) that continuously issue and redeem their shares at the net asset value (NAV), closed-end funds issue a fixed number of shares in an initial public offering (IPO). After the IPO, these shares are bought and sold on the open market, just like stocks or ETFs. The price of a closed-end fund’s shares fluctuates based on market forces such as supply and demand, and it can be at a premium or discount to the NAV.

High yields in closed-end funds are typically obtained by investing in higher-risk securities such as high-yield bonds (also known as junk bonds), leveraged loans, and other types of debt instruments, such as mortgage back Securities and other pass-through debt instruments. These securities offer higher interest rates due to their lower credit ratings. Closed-end funds may also use leverage, or borrowing to invest and amplify returns, but also increase risk.

Dividends in closed-end funds are typically paid out from the income generated by the fund’s investments. This could include interest payments from bonds or dividends from stocks. Most closed-end funds distribute dividends on a regular schedule—monthly, quarterly, or annually. It’s important to note that high dividend yields can be attractive, but they also can be a sign of higher risk. As always, investors should carefully consider their own risk tolerance and investment objectives.

 My favorite place to investigate closed-end funds is through Quantum Online. 

So Here are my top 5 closed-end funds. I have 10 but here are the 1st 5.

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Aberdeen Income Credit Strategies Fund (ACP) 

is a closed-end fund that primarily invests in loan and debt instruments across the globe. The objective is to seek a high level of current income, with a secondary objective of capital appreciation. The fund primarily invests in a diversified portfolio of income-producing securities, including corporate bonds, mortgage-backed securities, asset-backed securities, and other fixed-income instruments. ACP distributes income to shareholders every month, typically in the form of cash dividends. The current dividend is $1.20

Total investment exposure  $510.3 million

Total common assets of $365.3 million

Total debt $145 million

Leverage Ratio 28.42%

Monthly Dividend $.010

Dividend Yield 21.35%

Stock Price on 10/23/23 $5.62

Stock price on 2/23/2024

Percentage Change from 10/23/23 to 2/23/2024 19.59%

Net Asset Value(NAV) $7.01 or 19.83% discount 

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Pioneer Diversified High Income Fund, Inc. (HNW)

seeks high current income with capital appreciation as a secondary objective. By investing in a diversified portfolio of fixed-income securities, including high-yield corporate bonds, bank loans, preferred securities, and government debt securities the company looks to not only obtain a healthy dividend stream but growth. The fund may also invest in equities and other income-producing assets. HNW distributes income to shareholders every month, typically in the form of cash dividends. The current dividend is $1.08

Total investment exposure  $147.259 million

Total common assets $103.934 million

Total debt $43.325 million

Leverage Ratio 29.42%

Monthly Dividend $0.09

Dividend Yield 8.86%

Common Shares Outstanding 8,334,759 shares

Stock Price on 10/23/23 $9.94

Stock price on 2/23/2024 $11.18

Percentage Change from 10/23/23 to 2/23/2024 12.5%

Net Asset Value(NAV) $12.47 or 10.34% Discount

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PGIM Global High Yield Fund, Inc. (GHY)

The Fund Company seeks to achieve its objective by investing primarily in high-yield fixed-income instruments of issuers located around the world, including emerging markets.  Their investment of choice is primarily in below-investment-grade fixed-income instruments. With 47.3% of its assets in U.S. corporations, the company is well-diverse throughout the global market.  GHY distributes income to shareholders every month, typically in the form of cash dividends. The current dividend is $1.26

Total investment exposure  $669.644 million

Total common assets $524.644 million

Total debt $145 million

Leverage Ratio 21.61%

Monthly Dividend $0.105

Dividend Yield 10.91%

Common Shares Outstanding 40,923,879 shares

Stock Price on 10/23/23 $10.28

Stock price on 2/23/2024 $11.54

Percentage Change from 10/23/23 to 2/23/2024 12.26%

Net Asset Value(NAV) $12.85 or 10.19% Discount

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The Western Asset High Income Fund II Inc. (HIX) 

seeks to provide high current income, with capital appreciation as a secondary objective. The fund leverages its portfolio of high-yield corporate debt securities from both U.S. and non-U.S. corporations, with strategic allocations to emerging markets and other debt securities. HIX distributes income to shareholders every month, typically in the form of cash dividends. The current dividend is $0.58

Total investment exposure  $447.198 million

Total common assets $319.543 million

Total debt $127.655 million

Leverage Ratio 28.55%

Monthly Dividend $0.04902

Dividend Yield 13.12%

Common Shares Outstanding 67,272,154 shares

Stock Price on 10/23/23 $4.19

Stock price on 2/23/2024 $4.385

Percentage Change from 10/23/23 to 2/23/2024 4.65%

Net Asset Value(NAV) $4.78 or 8.99% Discount

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Credit Suisse Asset Management Income Fund (CIK)

Is one of the older closed-end funds, established on February 11, 1987. CIK does not focus on capital appreciation, the fund does not actively manage to grow capital gains. The fund company’s primary objective is to preserve capital while investing in U.S. high-yield corporate bonds and debentures. HIX measures its performance against the BofA Merrill Lynch High Yield Master II Constrained Index. CIK distributes income to shareholders every month, typically in the form of cash dividends. The current dividend is $0.27

Total investment exposure  $221.163 million

Total common assets $155.336 million

Total debt $65.827 million

Leverage Ratio 29.76%

Monthly Dividend $0.02252

Dividend Yield 8.97%

Common Shares Outstanding 52,656,247 shares

Stock Price on 10/23/23 $3.023

Stock price on 2/23/2024 $3.025

Percentage Change from 10/23/23 to 2/23/2024 .17%

Net Asset Value(NAV) $2.94 or 2.72% Premium

The value and benefits of closed-end funds, which are often overlooked by most investors: With their diversity of assets they don’t have the restrictions and requirements compared to mutual funds. By using your trading skills you can exploit more flexibility in execution timing. Traders who are seeking regular cash flow can benefit from enhancing their dead money capital growth and can find these gems at discounts to the fund’s Net Asset Value(NAV).

Closed-end Funds offer a unique blend of flexibility, income, and specialized exposure. While they may be lesser-known, their benefits make them worth considering for a diversified investment portfolio.

 

 

 

We are at the end of January 2024, and time is just speeding along. Looking at the Financial Heat map you will notice that January is normally a month of moderate returns. Tomorrow we will know the final tally for the rate of return for January.   If you follow the Financial heat map you will notice that the probability of the markets having a positive return for the month is slim. That being said, pick your entry points wisely, and let’s take a  look at some key factors to the Magnificent 7 Stocks.

These 7 stocks have such an impact on the world, our country, and the S&P 500 yet, for the most part,  we do see them daily. The Magnificent 7 are known to have a 28% weight on the S&P 500 and in the last quart of 2023, their impact was over 50%.

What do we know about these companies? What are their defining direction and how have they changed?

MSFT{Microsoft Corporation, last trade $403.27 -5.32 (-1.30%)} the owner of XBOX, Bing, Activision Blizzard, Linkedin, Skype, Nokia, aQuantive, and Hololens. The once-monoculture company is creating an enormous footprint in virtual gaming and artificial Intelligence. Combining some of the resources of these companies could create synergies that will take the world into greater high-tech societies. 

META{Meta Platforms, Inc., $393.55 -6.51 (-1.63%)}is one of the companies that no longer see themselves as a one-dimensional revenue stream. Facebook is no longer the sole revenue source generator. Facebook is now a company within the corporate structure of META. With companies such as Whatsapp, and Facebook Messenger, META could easily put an end to cell phone paid services.  Over 90% of the countries, Kenya, Malaysia, South Africa, Nigeria, Argentina, and others use WhatsApp. 69% of people with internet and wifi use WhatsApp. Even though Instagram is still a big revenue source for the company since its purchase in 2012, META is banking on its ownership of Oculus’, another subsidiary, virtual headset, and projects with WhatsApp to bring an even greater chat experience.

TSLA{Tesla, Inc.,  $190.12 -1.47 (-0.77%)} made a smart strategic move in 2016 by reorganizing the company acquiring Solar City and making it a division of Tesla known as Tesla Energy. In addition, TSLA owns German Car developer and manufacturer  Grohmann Engineering and Grohman parts division. Many people still view TSLA as an auto company but in fact, it is a data-driven tech company. Every Tesla automobile is linked to Tesla’s satellite company Starlink capturing data on driving habits, and building a detailed road map of every lane and driveway in the world. The data will then be processed to develop driverless cars. The strategic use of Solar City or Teslas Enery along with another subsidiary, Maxwell Technologies, is integrating resources to generate and store energy more efficiently. 

GOOGL{Alphabet Inc., $141.77 -9.69 (-6.40%)} is no longer just a search engine company. The reason behind the name Alphabet Inc. is that they own every letter on the internet. It consists of YouTube, Chrome, Android, Fitbit, Nest, and a host of other companies. Linking your Fitbit and Nest together is already a thing! GOOGL has long been working on driverless car technology through its subsidiary Waymo which puts them in direct competition with TSLA and UBER.

AAPL{Apple Inc., $185.93 -2.11 (-1.12%)} is the biggest company in the world with its ownership of over 125 different companies. The Cupertino, Ca. company that holds its headquarters at Applepark, has yet to make its biggest acquisition. We know how the iPhone has taken this company into realms of dominance. Remaking the music industry with Apple Music, and the acquisition of Beats Music, the company continues to make moves in the broader entertainment industry. Do we see another acquisition of a larger entertainment company, like Disney? 

AMZN{Amazon.com, Inc., $156.32 -2.68 (-1.69%)} is a hard company to determine the path which this massive company is headed. All we know is that when they enter a certain market they tend to destroy the competition with their approach of pursuit of industry dominance as a cheetah would a sickly gazelle. The main question that should be applied to the company is when will they get rid of the “.com” from their corporate name. Part of their list of subsidiaries includes MGM, the entertainment company, Audible, Alexa, Ring, Whole Foods, Amazon Robotics, and Zappos, an internet clothing retailer. Their company Twitch is an interactive video streaming service that is in the YouTube space but is a host to video and virtual gamers. Another subsidiary-owned company Zoox is an autonomous vehicle company.

NVDA{NVIDIA Corporation, $615.24 -12.49 (-1.99%)} is a chip maker that ties many of these companies together in the service that they provide; with chip making that requires more and more speed, Nvidia is the company that performs at a high demand.  Even though their subsidiaries aren’t as known as the others of the Magnificent 7, they are still highly effective. Companies like Bright Computing, Cumulus Network, and Mellanox Technologies help the other companies by providing accelerated computational functions in handheld devices tablets, and supercomputers. Cloud computing is a vital expense to many of these companies like, Starlink satellites, Amazon Web Services, and YouTube’s video quality, speed, and storage, are all using Nvidia chips. Even Apple, who has had bad relations with Nvidia is using their services on a project with Disney subsidiary Pixar, Adobe, and Autodesk. Steve Jobs purchased the company from George Lucas in 1986 and called it,  Pixar, which was sold to Disney in 2006 making him, then the largest Disney shareholder.

The value of these Magnificent 7 Stocks relies heavily on how they extract the intellectual capital from their subsidiaries. Even though this tech boom started 40 years ago, it is still very seldom that many of these companies have strayed from their dynamic goals. Some new products have taken them in an alternate course but they are still true to their core philosophy. For instance is Apple a phone maker or are they a developer of a computer that is now a handheld device? Has Alphapbert moved from a search engine or are they still using data to determine how we look to acquire information? Amazon Web Service is such a big company that it could be spun off into an even greater company. The key defining factor of all of these stocks is that they are dominant in technology and technology remains a big growth.

 

 

 

We’re coming up on one year since regional banks showed signs of weakness. In March of 2023, there were

2 casualties to insolvency, Silicon Valley Bank(SVB) and Signature Bank(SBNY);  then in May of 2023, First Republic Bank(FRCB), followed by Heartland Tri-state Bank(HLAN) in July of 2023 fell to high-interest rates.

In March the Fed responded with the opening of The Bank Term Funding Program. This program was established in December of 2002.  It was never funded until March of 2023 and by the end of the month, banks had borrowed funds from this program to the sum of $62.645 billion. This indicated that many banks suffered from the strains of inflationary interest rate hikes.

What led to the demise of these banks was the simple fact that they had such a high ratio of investments to deposits that were beyond their regulatory limits.

Many banks were able to escape this peril by getting access to these loans and the first round of loan payments are due in March of 2024. This leads to the prediction that the Fed may cut interest rates in March to help lenders who have borrowed from the program obtain a bit of ease of payment. At present the funds that have been borrowed from the program are $174 billion. 

5 regional stocks that appear to have weathered the interest rate shock and are displaying good returns are Zions Bancorporation, National Association (ZION), Valley National Bancorp (VLY), ServisFirst Bancshares, Inc. (SFBS), Western Alliance Bancorporation (WAL), Pacific Premier Bancorp, Inc. (PPBI).

ZION stock VLYstock  SFBS stock WAL stock  PPBI stock bank and banks

Zions Bancorporation, National Association (ZION) whose stock has gone from $29.69 on 10/23/23 to $45.67 on 12/14/23 a 54% return, and now trading at $43.93 showed a more prudent approach to managing their assets and deposits. In December of 2022, they had $89.5 billion in total assets, $71.7 billion in deposits; $55.1 billion in loans & $23.51 billion in total investments. October 2023 Quarterly report shows total assets of $87.3 billion, $75.4 billion in deposits, $56.2 billion in loans, and $20.74 in total investments.

Valley National Bancorp (VLY)  stock has gone from $7.75 on 10/23/23 to $11.03 on 12/14/23  a 42% return, and now trading at $10.58 appears to position itself as a traditional bank lending institution. In December of 2022, they had $56.9 billion in total assets, $47.6  billion in deposits; $46.9  billion in loans & $5.2 billion in total investments. October 2023 Quarterly report showed total assets of $61.1 billion, $49.8 billion in deposits, $50.9 billion in loans, and $6.05 in total investments.

ServisFirst Bancshares, Inc. (SFBS) stock price inflated from $46.79 on 10/23/23 to $65.11 on 12/14/23  a 39% return, and now trading at $62.80 also follows the old school model banking. In December of 2022, they had $14.6 billion in total assets, $11.55  billion in deposits; $11.6  billion in loans, and $1.6 billion in total investments. October 2023 Quarterly report showed total assets of $16 billion, $13.1 billion in deposits, $11.6 billion in loans, and $1.87 in total investments.

Western Alliance Bancorporation (WAL) stock soared from $41.41 on 10/23/23 to $66.30 on 12/14/23  a 60% return, and now trading at $64.53 continues to show their strong conservative credit culture serving diverse organizations. In December of 2022, they had $67.7 billion in total assets, $55.6  billion in deposits; $52.2  billion in loans, and $8.5 billion in total investments. October 2023 Quarterly report showed total assets of $70.9 billion, $54.3 billion in deposits, $48.1 billion in loans, and $10.4 in total investments.

Pacific Premier Bancorp, Inc. (PPBI) stock also had an impressive run from $20.02 on 10/23/23 to $29.55 on 12/14/23  a 48% return, and now trading at $27.80,  markets themselves as a disciplined institution, focusing on prudent and proactive risk, liquidity, and capital management. In December of 2022, they had $21.7 billion in total assets, $17.74 billion in deposits; $14.8 billion in loans, and $4.1 billion in total investments. October 2023 Quarterly report showed total assets of $20.3 billion, $16 billion in deposits, $13.67 billion in loans, and $3.83 in total investments.

With the spring not too far in focus, interest rate cuts may show a positive position for those banks who are following traditional banking strategies and may have the brightest outcome. 

Look for many postings like these and other simple trading ideas in the near future.