By the Numbers  

The good news is historically when the US stock market closes the first quarter of the year higher than it opened, there is a very high probability it will end the near with positive returns (40/42 times) as you can see in the chart below.  What else is rather obvious, the higher the first quarter gain, the greater the probability the year ends positive.  On the outside, the data suggests there is a strong argument to stay invested for the entire year.

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Those numbers tell a compelling story but when slicing the data in a different way, I wondered if the story becomes less persuasive when removing the first quarter’s performance. Just how many of those 42 years ended with a Q2-Q4 positive performance? I wanted to find out if better returns were achieved by selling at the end of the first quarter and sitting on the sidelines or staying fully invested. As it turns, out while its not as strong, it was statistically significant as 33/40 years ended with positive Q2 through Q4 performance. If you are an evidenced based investor, the data suggests you ignore those inner sell concerns and stay invested for the balance of the year.  Or, better yet, watch price and volume and follow your plan.

Double Bottom

After hitting $100 share in March of last year, Western Digital’s stock, WDC, fell on hard times as it declined more than 65%, bottoming 10 months later in December.  Since then it has made two higher highs and one higher low and sits just under an important past area of resistance. You can see in the upper pane RSI momentum now resides in the bullish zone while price is above the bullishly aligned moving averages (price > 50dma >200dma). While not perfect, the recent 11+ month consolidation formed a double bottom which, if plays out, has an upside target at T1, a 40+% gain from a breakout. I do want to point out the volume patterns are confirming a potential move higher as we are seeing the large volume (bottom pane) spikes shifting from predominantly red (institutional selling) to green (institutional buying)

cfp investment advisor san ramon wdc 8-19-19.png

 Of course, being a technology stock (hard drives), this opportunity will have little to no chance of ever hitting its upside target if either an escalation or no change to the current US-China trade standoff happens. But, any positive resolution sets WDC’s stock as an attractive opportunity with healthy gain potential.

It’ll Never Happen?

Like all financial institutions, Schwab’s stock price is subject to the changes in prevailing interest rates.  As rates fall, banks make less money as the spread between borrowing and lending (profit) shrinks. With inverted yield curves, falling yields, a global economic slowdown and the possibility of a recession in the forefront, financial institutions have been one of the weakest performing US sectors.

Schwab’s long-term chart below looks quite similar to many and reflects the current weakness in financial stocks. It has broken below its long-term uptrend line and sits right on the neckline of a bearish reversal head and shoulders topping pattern. If this pattern were to trigger and play out, its target is way down at T1, more than 50% below yesterday’s closing price. That is a huge drop and unless there is a major catastrophe, there is a low probability it comes to fruition. For it to occur, a catalyst (such as a full-blown trade war) triggering a global recession would need to be present. Anything is possible but unlikely to occur any time real soon. If never, it will go down in the books as another false signal breakdown. As of right now, it should be only viewed as a possibility (apparently an escalation to trade confrontation has been put on hold by POTUS until Dec 15th) but without question a concern all investors should be watching closely because global recessions are not selective in their damage to portfolios.

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Coming to a Bank Near You?

A bank in Denmark is offering borrowers mortgages at a negative interest rate, effectively paying its customers to borrow money for a house purchase. Jyske Bank, Denmark's third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%. To put the -0.5% rate in simple terms: If you bought a house for $1 million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000. It should be noted that even with a negative interest rate, banks often charge fees linked to the borrowing, which means homeowners could still pay back more.

Jyske Bank's negative rate is the latest in a series of extremely low interest offers from Danish banks to homeowners. It should also be noted that negative rates have been available on short-term mortgage bonds in Denmark since May.

It may seem counter-intuitive for banks to lend out their money at such low rates — but there is a rationale behind it and driven by fear. Financial markets are in an especially volatile and uncertain spot right now. Factors include the US-China trade war, Brexit, and a generalized economic slowdown across the world — noticeable especially in Europe. Many investors are fearing a substantial crash in the near future. As such, some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by lending money at higher rates that customers cannot meet. It shows how scared some European investors are of the current situation in the financial markets, and that they expect it to take a very long time before things improve.