J. Brett Freeze and his firm Global Technical Analysis (GTA) provides RIA Pro subscribers Cartography Corner on a monthly basis. Brett’s analysis offers readers a truly unique brand of technical insight and risk framework. We personally rely on Brett’s research to help better gauge market trends, their durability, and support and resistance price levels.

GTA presents their monthly analysis on a wide range of asset classes, indices, and securities. At times the analysis may agree with RIA Pro technical opinions, and other times it will run contrary to our thoughts. Our goal is not to push a single view or opinion, but provide research to help you better understand the markets. Please contact us with any questions or comments.  If you are interested in learning more about GTA’s services, please connect with them through the links provided in the article.

The link below penned by GTA provides a user’s guide and a sample of his analysis.

GTA Users Guide

March 2020 Review

E-Mini S&P 500 Futures

We begin with a review of E-Mini S&P 500 Futures (ESM(H)0) during March 2020. In our March 2020 edition of The Cartography Corner, we wrote the following:

In isolation, monthly support and resistance levels for March are:

• M4                 3614.00
• M1                 3457.50
• PMH              3397.50
• MTrend         3166.53
• Close             2951.00     
• PML               2853.25
• M3                 2678.00    
• M2                 2525.50     
• M5                2369.00

Active traders can use 3166.50 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Figure 1 below displays the daily price action for March 2020 in a candlestick chart, with support and resistance levels isolated by our methodology represented as dashed lines.  The first trading session of March saw the market price rise, reflecting market participants’ “buy-the-dip” mentality towards February’s weakness and anticipation of the Federal Reserve responding with further monetary stimulus.  The high trade for March was realized during the second trading session at 3137.00, just under our isolated pivot at March Monthly Trend, MTrend: 3166.53.  The following two trading sessions saw lower highs, yet they also afforded market participants reasonable opportunities to sell against March Monthly Trend.  On March 6^th, 2020, the market price began to break lower, with clustered support at QTrend: 2974 and Q2: 2934.25 being surpassed intra-session and the market price settling the session below QTrend.

During the following session, March 9th, the market price gapped lower on the open, breaking and settling below another clustered support zone at PQL: 2855.00 and PML:2853.25.  The following two trading sessions were spent with the market price oscillating between PQL / PML now acting as resistance and isolated support at M3: 2678.00.  On March 12^th, the market price descended below isolated support at M3: 2678 and M2: 2525.50, stopping short of achieving the Monthly Downside Exhaustion level for March at M5: 2369.00.  The following three trading sessions were spent with the market oscillating between M3: 2678.00 now acting as resistance and support at M5: 2369.00.  The Monthly Downside Exhaustion level was first achieved on March 16^th, 2020.

With the market price having achieved our isolated Monthly Downside Exhaustion level, our focus turned immediately to our weekly support levels.  The following four trading sessions, March 18^th through March 23^rd, saw the market price continue to descend below M5: 2369.00.  The low price for March was achieved on March 23^rd at the price of 2174.00.

On March 23^rd, the Federal Reserve committed to unlimited quantitative easing (QE).  That action stopped the market price descent and a rally ensued.  The final six trading sessions of March saw the market price rise sharply from the low, with monthly (and weekly) support levels acting as resistance.

Active traders following our monthly analysis had the opportunity to capture a 24% profit.

Figure 1:

Gold Futures

We continue with a review of Gold Futures (GCM(J)0) during March 2020.  In our March 2020 edition of The Cartography Corner, we wrote the following:

In isolation, monthly support and resistance levels for March are:

• M4         1863.70
• M1         1770.10
• PMH       1691.70
• M2         1582.50
• Close        1566.70
• MTrend   1560.26
• PML        1551.10           
• M3         1545.50                       
• M5           1488.90

Active traders can use 1545.50 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Figure 2 below displays the daily price action for March 2020 in a candlestick chart, with support and resistance levels isolated by our methodology represented as dashed lines.  The first six trading sessions of March, aided by the Federal Reserve’s actions on March 3^rd, saw the market price ascend to and surpass intra-session February’s high price at PMH: 1691.70.  However, the market price did not settle above February’s high.

Over the following four trading sessions, the market price descended through multiple isolated support levels, including our isolated pivot at M3: 1545.50.  On March 16^th, our Monthly Downside Exhaustion level for March at M5: 1488.90 was achieved and exceeded intra-session.  The low price for the month at 1451.74 was realized during that session.  The following four sessions were spent with the market price oscillating between clustered support levels at MTrend: 1560.26 / PML: 1551.10 / M3: 1545.50, now acting as resistance, and Monthly Downside Exhaustion level acting as support.

The Federal Reserve announcement of unlimited quantitative easing on March 23^rd re-ignited market participant’s enthusiasm for Gold.  The market price cleared the clustered support levels at MTrend: 1560.26 / PML: 1551.10 / M3: 1545.50, now acting as resistance.  On March 24^th and March 25^th, the market price ascended to and surpassed intra-session February’s high price at PMH: 1691.70.  The final four trading sessions of March were spent with the market price essentially drifting sideways, with a final push lower towards isolated support at M2: 1582.50.

Our analysis essentially bound the realized range for March.

Figure 2:

April 2020 Analysis

E-Mini S&P 500 Futures

We begin by providing a monthly time-period analysis of E-Mini S&P 500 Futures (ESM0).  The same analysis can be completed for any time-period or in aggregate.

Trends:

• Monthly Trend        2980.56       
• Quarterly Trend      2918.33
• Current Settle         2569.75       
• Daily Trend             2567.31       
• Weekly Trend          2501.47

In the quarterly time-period, the chart shows that E-Mini S&P 500 Futures are in “Consolidation”, after having been “Trend Up” for four quarters.  Stepping down one time-period, the monthly chart shows that E-Mini S&P 500 Futures are in “Consolidation”, settling below Monthly Trend for two months.  Stepping down to the weekly time-period, the chart shows that E-Mini S&P 500 Futures have been “Trend Down” for five weeks.  The relative positioning of the Trend Levels has lost its bullish posture.

We wrote in March, “The final piece of the sustained Trend Reversal puzzle is a quarterly settlement under Quarterly Trend at QTrend: 2974.00.”  March’s settlement completed the puzzle.

One rule we have is to anticipate a two-period high (low), within the following four to six periods, after a Downside (Upside) Exhaustion level has been reached.  We now anticipate a 2-period high in the quarterly time- period over the next four to six quarters, in the monthly time-period over the next four to six months, and in the weekly time-period within two weeks.  This does not mean the market price will immediately reverse higher, as those two-period highs can occur at lower absolute levels.  In our judgment, in bear markets, two-period highs are the safest place to sell. Illustrations of this concept, in the monthly time-period, can be found in our April 2018 commentary.

Support/Resistance:

In isolation, monthly support and resistance levels for April are:

• M4                 3420.75
• PMH              3137.00
• MTrend         2980.56
• M1                 2876.50
• Close             2569.75     
• M3                 2188.50
• PML               2174.00     
• M2                 1494.75     
• M5                950.50

Given that the first monthly resistance and support levels are roughly 300 and 400 points away from the current market price, we suggest active traders rely upon our weekly analysis to guide them directionally.

For less-active market participants with an intermediate or long time-period focus, we suggest using MTrend: 2980.56 and QTrend: 2918.33 as the pivot, respectively.  Maintain a flat or short position below the pivot and a long position above the pivot.

WTI Crude Oil Futures

For April, we focus on WTI Crude Oil Futures (“Crude”).  We provide a monthly time-period analysis of CLK0.  The same analysis can be completed for any time-period or in aggregate.

Trends:

• Quarterly Trend    49.79             
• Monthly Trend      44.43
• Weekly Trend       26.73             
• Daily Trend           20.94             
• Current Settle       20.48

As can be seen in the quarterly chart below, Crude is in “Consolidation”.  Stepping down one time-period, the monthly chart shows that Crude has been “Trend Down” for three months.  Stepping down to the weekly time-period, the chart shows that Crude has been “Trend Down” for five weeks.

Our model got short Crude in January with the break of Monthly Trend.  We had no insight into the actions of Saudi Arabia concerning oil output and pricing.  As we have, please consider the following words of wisdom from Ed Seykota:

“A surprise is an event that catches someone unaware.  If you are already on the trend, the surprises seem to happen to the other guys.”

To our knowledge, no one predicted that Saudi Arabia would boost production and cut its selling price for oil.      

Support/Resistance:

In isolation, monthly support and resistance levels for April are:

• M4         53.47
• PMH       48.66
• MTrend  44.43
• M1         42.66
• Close        20.48
• PML         19.27
• M3         0.00     
• M2         0.00                 
• M5           0.00

Active traders can use 19.27 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Summary

The power of technical analysis is in its ability to reduce multi-dimensional markets into a filtered two-dimensional space of price and time.  Our methodology applies a consistent framework that identifies key measures of trend, distinct levels of support and resistance, and identification of potential trading ranges.  Our methodology can be applied to any security or index, across markets, for which we can attain a reliable price history.  We look forward to bringing you our unique brand of technical analysis and insight into many different markets.  If you are a professional market participant and are open to discovering more, please connect with us.  We are not asking for a subscription; we are asking you to listen.

J. Brett Freeze and his firm Global Technical Analysis (GTA) provides RIA Pro subscribers Cartography Corner on a monthly basis. Brett’s analysis offers readers a truly unique brand of technical insight and risk framework. We personally rely on Brett’s research to help better gauge market trends, their durability, and support and resistance price levels.

GTA presents their monthly analysis on a wide range of asset classes, indices, and securities. At times the analysis may agree with RIA Pro technical opinions, and other times it will run contrary to our thoughts. Our goal is not to push a single view or opinion, but provide research to help you better understand the markets. Please contact us with any questions or comments.  If you are interested in learning more about GTA’s services, please connect with them through the links provided in the article.

The link below penned by GTA provides a user’s guide and a sample of his analysis.

GTA Users Guide

February 2020 Review

E-Mini S&P 500 Futures

We begin with a review of E-Mini S&P 500 Futures (ESH0) during February 2020. In our February 2020 edition of The Cartography Corner, we wrote the following:

In isolation, monthly support and resistance levels for February are:

• M4                 3605.50
• M1                 3421.00
• PMH              3337.50
• M2                 3292.50
• Close             3224.00     
• M3                 3217.00
• PML               3181.00     
• MTrend         3180.97     
• M5                3108.00

Active traders can use 3217.00 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Figure 1 below displays the daily price action for February 2020 in a candlestick chart, with support and resistance levels isolated by our methodology represented as dashed lines.  The first four trading sessions of February saw the market price rise, reflecting market participants’ bullishness toward the recent directional bias.  On February 6^th, the market price exceeded, and settled above, January’s high price at PMH: 3337.50.  The market oscillated around that level for the following two trading sessions, building energy for the next directional move.  Over the following six trading sessions, the market price continued to drift higher, reaching its high settlement price for the month on February 19^th at 3387.25.

During the following session, February 20^th, the market achieved its high price for February at 3397.50 yet settled down for the trading session.  This small reversal was a precursor to the carnage that ensued.

Over the final six trading sessions of February, risk-management and speculative actions related to fear of the economic impact(s) of the CoronaVirus gripped market participants.  The market price declined (16.02%) peak-to-trough and (12.88%) on a settlement basis.  To the uninformed and unprepared, the rapid decline may have appeared to be unorderly.  However, we know that is not the case…

I would like readers to focus on the “anatomy” of the decline:

• February 20^th: The small reversal referred to earlier stopped right in front of PMH: 3337.50, then acting as support.
• February 21^st: PMH: 3337.50 again offered support, with the market price settling at 3339.25.
• February 24^th: The market had an opening gap lower, with the early price action occurring in front of M2: 3292.50, then acting as support.  Once that level gave way, the market price declined to and settled just above our isolated pivot for February at M3: 3217.00.
• February 25^th: Clustered support levels at M3: 3217.00 / PML: 3181.00 / MTrend: 3180.97 gave way, suggesting the market price was going to test the Monthly Downside Exhaustion at M5: 3108.00.  The low for the session was 3117.25.
• February 26^th: The trading range for the session was essentially bound by MTrend: 3180.97 and PML: 3181.00, then acting as resistance, and M5: 3108.00, acting as support.  The market price settled the session at 3110.25, with an intra-session low of 3091.00.

Our clients know that the emphasis we place on our levels increases with the length of the time period.  Quarterly levels, with Quarterly Trend specifically, being the most important.  Coming into the trading session of the 27th, the market had already achieved our isolated Monthly Downside Exhaustion, so what were we to do?  Our focus turned immediately to the quarterly support levels.

• February 27^th: Support at M5: 3108.00 gave way and the market price achieved, and exceeded, Quarterly Trend at QTrend: 2974.00.  The market price settled at 2957.00, in between QTrend: 2974.00 and our next support level at Q2: 2934.25.
• February 28^th: The purpose of every trading session is to surpass the high or low of the previous trading session…  The trading range was essentially bound by QTrend: 2974.00, then acting as resistance, and the previous quarter low at PQL: 2855.00, acting as support.  The low trade for February occurred at the price of 2853.25; purpose fulfilled in both the monthly and quarterly time periods.

Our analysis, yet again, proved its worth to the discerning market participant.  For both long-term investors managing risk and traders actively speculating, our analysis provided a map to profitability.  Subscriptions and referrals are appreciated.

Bitcoin Futures

We continue with a review of Bitcoin Futures (BTH0) during February 2020.  In our February 2020 edition of The Cartography Corner, we wrote the following:

In isolation, monthly support and resistance levels for February are:

• M4         13,070
• M3         11,670
• M1         11,520
• PMH       9,745
• Close        9,440
• MTrend   7,982
• M2         7,300  
• PML        6,860              
• M5           5,750

Active traders can use 9,745 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Figure 2 below displays the daily price action for February 2020 in a candlestick chart, with support and resistance levels isolated by our methodology represented as dashed lines.  On the third trading session of February, bitcoin settled above our isolated pivot level at PMH: 9,745.  The following six trading sessions saw the market price rise to a high price of 10,670 on February 13^th, with the high settlement price for the month being achieved at 10,525 the session before.

Over the following four trading sessions, the market price descended to and settled back below our isolated pivot level at PMH: 9,475, then acting as support.  The final six trading sessions of the month saw the market price declining towards Monthly Trend at MTrend: 7,982.

Conservatively, active traders following our analysis had the opportunity to monetize a 10.7% profit.

March 2020 Analysis

E-Mini S&P 500 Futures

We begin by providing a monthly time-period analysis of E-Mini S&P 500 Futures (ESH0).  The same analysis can be completed for any time-period or in aggregate.

Trends:

• Weekly Trend         3250.44       
• Monthly Trend        3166.53
• Daily Trend             3022.42       
• Quarterly Trend      2974.00       
• Current Settle          2951.00

In the quarterly time-period, the chart shows that E-Mini S&P 500 Futures have been “Trend Up” for four quarters.  Stepping down one time-period, the monthly chart shows that E-Mini S&P 500 Futures are in “Consolidation”, after having been “Trend Up” for eight months.  Stepping down to the weekly time-period, the chart shows that E-Mini S&P 500 Futures are in “Consolidation”.  The relative positioning of the Trend Levels is beginning to lose its bullish posture.

We wrote in February, “The next event that needs to occur to strengthen the case of a possible Trend Reversal is a monthly settlement under Monthly Trend.”  February’s settlement achieved that.  The final piece of the sustained Trend Reversal puzzle is a quarterly settlement under Quarterly Trend at QTrend: 2974.00.  We eagerly anticipate the settlement price on March 31^st.

Support/Resistance:

In isolation, monthly support and resistance levels for March are:

• M4                 3614.00
• M1                 3457.50
• PMH              3397.50
• MTrend         3166.53
• Close             2951.00     
• PML               2853.25
• M3                 2678.00    
• M2                 2525.50     
• M5                2369.00

Active traders can use 3166.50 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Gold Futures

For the month of March, we focus on Gold Futures (“Gold”).  We provide a monthly time-period analysis of GCJ0.  The same analysis can be completed for any time-period or in aggregate.

Trends:

• Daily Trend           1627.51         
• Weekly Trend       1604.79
• Current Settle       1566.70         
• Monthly Trend       1560.26        
• Quarterly Trend     1449.56

As can be seen in the quarterly chart below, Gold has been “Trend Up” for five quarters.  Stepping down one time-period, the monthly chart shows that Gold has been “Trend Up” for three months.  Stepping down to the weekly time-period, the chart shows that Gold is in “Consolidation”, after having been “Trend Up” for eleven weeks.

If not for the agenda of a motivated seller on Friday, February 28^th, Gold would have settled above Weekly Trend again.  However, as a technician, my primary job is to recognize the beginning of a new trend, the reversal of an existing trend, or a consolidation area, regardless of qualitative factors.  Adhering to that job, Gold has begun to consolidate in the weekly time-period and is only 6.43 points away from consolidating in monthly time-period.  This deserves attention, as Gold has had quite a rally over the past five quarters.

Support/Resistance:

In isolation, monthly support and resistance levels for March are:

• M4         1863.70
• M1         1770.10
• PMH       1691.70
• M2         1582.50
• Close        1566.70
• MTrend   1560.26
• PML        1551.10           
• M3         1545.50                       
• M5           1488.90

Active traders can use 1545.50 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Summary

The power of technical analysis is in its ability to reduce multi-dimensional markets into a filtered two-dimensional space of price and time.  Our methodology applies a consistent framework that identifies key measures of trend, distinct levels of support and resistance, and identification of potential trading ranges.  Our methodology can be applied to any security or index, across markets, for which we can attain a reliable price history.  We look forward to bringing you our unique brand of technical analysis and insight into many different markets.  If you are a professional market participant and are open to discovering more, please connect with us.  We are not asking for a subscription; we are asking you to listen.

J. Brett Freeze and his firm Global Technical Analysis (GTA) provides RIA Pro subscribers Cartography Corner on a monthly basis. Brett’s analysis offers readers a truly unique brand of technical insight and risk framework. We personally rely on Brett’s research to help better gauge market trends, their durability, and support and resistance price levels.

GTA presents their monthly analysis on a wide range of asset classes, indices, and securities. At times the analysis may agree with RIA Pro technical opinions, and other times it will run contrary to our thoughts. Our goal is not to push a single view or opinion, but provide research to help you better understand the markets. Please contact us with any questions or comments.  If you are interested in learning more about GTA’s services, please connect with them through the links provided in the article.

The link below penned by GTA provides a user’s guide and a sample of his analysis.

GTA Users Guide

January 2020 Review

E-Mini S&P 500 Futures

We begin with a review of E-Mini S&P 500 Futures (ESH0) during January 2020. In our January 2020 edition of The Cartography Corner, we wrote the following:

In isolation, monthly support and resistance levels for January are:

• M4                 3475.00
• M1                 3353.00
• M3                 3318.25
• PMH              3254.00
• Close             3231.00     
• M2                 3106.00
• MTrend        3092.44     
• PML               3069.50    
• M5                 2984.00

Active traders can use 3254.00 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Figure 1 below displays the daily price action for January 2020 in a candlestick chart, with support and resistance levels isolated by our methodology represented as dashed lines.  The first four trading sessions of January saw the market price exhibit “choppiness”, reflecting market participants’ indecision as to directional bias.  Early into the fifth trading session, January 8^th, the geopolitical event emanating from Iran caused the market price to achieve its low price for the month at 3181.00.  However, by the end of the day, the market price had recovered and settled back above our isolated pivot at PMH: 3254.00.     

Over the following six trading sessions, the market price ascended to our isolated resistance level at M3: 3318.25.  The ensuing four sessions saw the market price lose its upward momentum, straddling either side of M3: 3318.25.  On January 22nd the high price for the month was realized at 3337.50, in between our resistance levels at M3: 3318.25 and M1: 3353.00.

From January 24^th through the end of the month, the market price action was dominated by market participants’ reaction-to and anticipation-of the effects of the Wuhan Coronavirus.  The trading sessions of January 24^th and 27^th saw the market price decline a total of 86.50 points on a settlement basis.  The final four trading sessions were spent with the market price oscillating around our isolated pivot at PMH: 3254.00.

Conservatively, active traders following our analysis had the opportunity to monetize a 1.78% profit.

Figure 1:

Japanese Yen Futures

We continue with a review of Japanese Yen Futures (6JH0) during January 2020.  In our January 2020 edition of The Cartography Corner, we wrote the following:

In isolation, monthly support and resistance levels for January are:

• M4         0.94068
• M3         0.93445
• PMH       0.92659
• Close      0.92455
• M1           0.92403
• MTrend   0.92330
• PML        0.91195           
• M2         0.91140                       
• M5           0.89475

Active traders can use 0.92659 as the upside pivot, whereby they maintain a long position above that level.  Active traders can use 0.92330 as the downside pivot, whereby they maintain a flat or short position below that level.

As you read this, recall that we wrote in January that the annual correlation of daily returns between Japanese Yen Futures and E-Mini S&P 500 Futures is -0.53.  January’s price action in those markets were mirror images of one another.

Figure 2 below displays the daily price action for January 2020 in a candlestick chart, with support and resistance levels isolated by our methodology represented as dashed lines.  The first four trading sessions of January saw the market price exhibit “choppiness”, reflecting market participants’ indecision as to directional bias.  Early into the fifth trading session, January 8^th, the geopolitical event emanating from Iran caused the market price to achieve its high price for the month at 0.93235.  However, by the end of the day, the market price had recovered and settled back below our isolated downside pivot at MTrend: 0.92330.

Over the following six trading sessions, the market price descended to and settled below, our clustered support levels at PML: 0.91195 and M2: 0.91140.  On January 17th the low price for the month was realized at 0.90935.

From January 18^th through the end of the month, the market price action was dominated by market participants’ reaction-to and anticipation-of the effects of the Wuhan Coronavirus.  The market price rallied back to, and settled slightly above, our clustered support levels at MTrend: 0.92330 and M1: 0.92403, now acting as resistance.

Conservatively, active traders following our analysis had the opportunity to monetize a 0.81% profit.

Figure 2:

February 2020 Analysis

E-Mini S&P 500 Futures

We begin by providing a monthly time-period analysis of E-Mini S&P 500 Futures (ESH0).  The same analysis can be completed for any time-period or in aggregate.

Trends:

• Weekly Trend         3285.17       
• Daily Trend             3265.61
• Current Settle         3224.00       
• Monthly Trend        3180.97       
• Quarterly Trend      2974.00

In the quarterly time-period, the chart shows that E-Mini S&P 500 Futures have been “Trend Up” for four quarters.  Stepping down one time-period, the monthly chart shows that E-Mini S&P 500 Futures have been “Trend Up” for eight months.  Stepping down to the weekly time-period, the chart shows that E-Mini S&P 500 Futures are in “Consolidation”, after having been “Trend Up” for sixteen weeks.  The relative positioning of the Trend Levels is beginning to lose its bullish posture.

We wrote in January, “The first indication of weakness will be a weekly settlement under Weekly Trend”.  We now have that indication.  The next event that needs to occur to strengthen the case of a possible Trend Reversal is a monthly settlement under Monthly Trend.  As noted above, Monthly Trend for February is at 3180.97.

Astute readers will notice that January’s low coincided with February’s Monthly Trend level.  Hmmm…

Support/Resistance:

In isolation, monthly support and resistance levels for February are:

• M4                 3605.50
• M1                 3421.00
• PMH              3337.50
• M2                 3292.50
• Close             3224.00     
• M3                 3217.00
• PML               3181.00     
• MTrend         3180.97     
• M5                3108.00

Active traders can use 3217.00 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Bitcoin Futures

For the month of February, we focus on Bitcoin Futures.  We provide a monthly time-period analysis of BTG0.  The same analysis can be completed for any time-period or in aggregate.

Trends:

• Daily Trend           9,489             
• Current Settle       9,440
• Quarterly Trend    9,239             
• Weekly Trend       8,830             
• Monthly Trend      7,982

As can be seen in the quarterly chart below, Bitcoin is in “Consolidation”.  Stepping down one time-period, the monthly chart shows that Bitcoin is in “Consolidation”, after having been “Trend Down” for five months.  Stepping down to the weekly time-period, the chart shows that Bitcoin has been “Trend Up” for five weeks.

With the weekly, monthly, and quarterly trend levels having quietly slipped beneath the market price, it is worth considering that the rally in Bitcoin that began five weeks ago may be just the beginning of a substantial move higher in price.

Support/Resistance:

In isolation, monthly support and resistance levels for February are:

• M4         13,070
• M3         11,670
• M1         11,520
• PMH       9,745
• Close        9,440
• MTrend   7,982
• M2         7,300  
• PML        6,860              
• M5           5,750

Active traders can use 9,745 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Summary

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Annuity.

Say the word and watch facial expressions.

They range from fear, disgust, confusion.

Billionaire money manager and financial pitchman Ken Fisher appears as the senior version of Eddie Munster in television ads for his firm.

He stares. Deep eyes ablaze with intensity. The tight camera shot. A dramatic pause, then solemnly he delivers the line:

“I hate annuities. I’d rather go to hell then sell annuities.”

Which obviously means you should too. The financial professional with a net worth of 500,000 Americans put together doesn’t need to worry much about lifetime income or portfolio principal loss. Obviously, he doesn’t believe you need to, either.

No offense but…

Let’s face it.

Ken Fisher is a master marketer. There’s no doubt of his prowess to pitch his wares. He’s raised megabucks for his firm. However, what he knows academically about annuities and how they mitigate life expectancy risk can fit in to a dollhouse thimble. And that’s fair because he doesn’t need to worry about running out of wealth. You most likely do.

Based on past comments he made in print about the financial planning industry, deeming it ‘unnecessary,’ I understand why he isn’t a fan of anything or anyone but himself. If you’re close to retirement or in retirement income distribution mode, you will pay for his overconfidence.

Unfortunately, what Ken Munster (I kid), is correct about is you as a consumer and investor must be skeptical of annuities as they are customarily offered. As they ‘sold first and planned for later.’

An annuity solution shouldn’t be on the radar until holistic financial planning is completed to determine whether there’s longevity risk – a strong probability of an investor outliving a nest egg. Annuities, especially deferred and immediate income structures, take the stress off a portfolio to generate lifetime income and places that risk with insurance companies. Fixed annuities that allow owners to participate in the upside of broad stock market indexes can be used as bond replacements.

Respected Professor Emeritus of Finance at the Yale School of Management and Chairman, Chief Investment Officer for Zebra Capital Management, LLC Roger G. Ibbotson, PhD, in a comprehensive white paper released last week, outlined how fixed indexed annuities which provide upside market participation and zero downside impact may be attractive alternatives to traditional fixed income like bonds.

In an environment where forecasted stock market returns may be muted due to rich valuations and bond yields still at historic lows, FIAs eliminate downside stock market risk and offer the prospect of higher returns than traditional asset classes. Ironically, at our Clarity investment committee two weeks ago, one of our partners, Connie Mack showcased a similar strategy based on our organization’s lowered return projections for traditional stock and bond portfolios.

Per Roger Ibbotson:

“Generic FIA using a large cap equity index in simulation has bond-like risk but with returns tied to positive movements in equities, allowing for equity upside participation. For these reasons, an FIA may be an attractive alternative to (long-term government bonds) to consider.”

In financial services, Ibbotson is a god. Brokers and advisors have been misrepresenting to consumers his seminal chart of 100-year stock market returns for as long as I’ve been in the business. The chart outlines how domestic large and small company stocks compound at 10-12% and beat the heck out of bonds, bills and inflation; financial professionals showcase the lofty past returns and convince customers that without buying and holding stocks for the long term (whatever that is), they’ll succumb to the vagaries of inflation. Adhere to the chart and your portfolio will have it made in the shade! (if invested in stocks for 100 years plus).

In all fairness to Roger Ibbotson, it’s not his fault that his data and graphics have been used to seduce investors to bet their hard-earned wealth on investment fantasy. He’s been in favor of annuities in retirement portfolios and in accumulation portfolios leading up to retirement for a long time.

Investment fantasy:

Investor reality:

It took nearly 14-years just to break even and 18-years to generate a 2.93% compounded annual rate of return since 2000. (If you back out dividends, it was virtually zero.) This is a far cry from the 6-8% annualized return assumptions promised to “buy and hold” investors and the 10-12% promised by financial pros who misrepresent Ibbotson’s work.

Investors if lucky, have 20 years to save interrupted. As labor economist and nationally-recognized expert in retirement security professor Teresa Ghilarducci shared with us recently on the Real Investment Hour – “Life has a way of getting in the way.”

I have yet in my 28 years in the business to meet a Main Street investor who’s achieved or achieving the long-term returns displayed in Ibbotson’s chart. The information is correct; how it’s used to sucker investors into “buy & forget” portfolios regardless of valuations and market cycles is unfortunate.

It’s time to provide the real story about annuities – the most popular types available, financial guardrails or rules to consider before annuities are purchased, what consumers should look for in a product and most important, what should be avoided.

Not every annuity product is ‘the devil.’

Unfortunately, all annuity types get lumped together and blanketed by the same sordid reputation.  Those who push annuities to collect attractive commissions ostensibly leave buyers confused (annuities by nature are complex), and regretful; these products are not explained well upfront and once the sale is complete, the consumer is usually left to figure out alone the intricacies of the contract.

Sales people tend to attach expensive riders (add-ons), to annuities that consumers may or may not need. Overall, the process is not a positive experience. Bad press and poor sales practices make annuities one of the most misunderstood products out there.  It’s a shame because annuities can help mitigate longevity risk and increase the survival rate of traditional stock and bond retirement portfolios.

Good-intentioned and knowledgeable financial professionals are not inured against falling for pervasive horror stories when in fact they could be doing their clients a disservice by ignoring benefits annuities can bring to the table for those who have high probabilities of outliving assets that generate income in retirement.

So, let’s get basic. Ground floor.

What is an annuity, anyway?

An annuity is a sum of money, generally paid in installments over a contract owner’s lifetime or that of the owner and a spouse or a beneficiary. Annuities are insurance products that guarantee a lifetime income stream. Pensions are considered annuities. Yes, Social Security is an annuity (guaranteed by the Federal Government).

For years, several well-known money managers and syndicated financial superstars have overwhelmed social, television and weekend radio media with negative information about annuities.

Several types of annuities can be incorporated into a holistic financial plan.

It’s time Real Investment Advice readers understand the truth.

Here’s real investment advice lessons for three of the most popular annuity structures:

Variable Annuities: “The Black Sheep.”

Variable annuities are a hybrid. A blend of mutual funds and insurance. Guarantees come in the form of death benefits to beneficiaries or payouts for life if annuitized which means the investment is converted by the respective insurance company into a series of periodic payments over the life of annuitant or owner of the contract. Variable annuities are ground zero for negative press as they can be expensive and generate big commissions for brokers.

Earnings are tax deferred and taxed as ordinary income upon withdrawal. Investments in variable annuities are best outside of tax-sheltered accounts like IRAs which are already tax deferred. Investment choices are plentiful. There are various riders that may be attached. The most common is the GLWB or Guaranteed Lifetime Withdrawal Benefit rider which guarantees a lifetime income withdrawal percentage on the principal invested or the account value, whichever is greater. Owners barely understand how variable annuities operate; many don’t realize their contracts contain riders, how much they cost, or what they do. I frequently deal with the frustration people feel.

Candidly, I cannot consider a valid reason for consumers to purchase variable annuities. In its purest form, an annuity should provide lifetime income, increase retirement portfolio longevity and possess zero downside risk to principal. Most investors possess exposure to variable assets such as stocks and bonds through company retirement plans already. I see little rationale to mix financial oil and water through variable annuities that combine insurance and mutual funds. The marriage of these two appears to be nothing more than a mission to generate revenue for the respective industries.

If you own a variable annuity within an IRA, consider liquidating it and transferring to a traditional IRA, preferably at a discount brokerage firm. Be wary of surrender charges that may occur upon liquidation. Non-qualified or variable annuities purchased with after-tax dollars can be liquidated however, taxes and withdrawal penalties may apply. It’s best to sit with a fiduciary who is proficient with annuities to assist with a strategy to unwind from this product.

Fixed Annuities. “The Quiet Ones.”

Fixed annuities or “multi-year guaranteed” annuities or MYGAs are essentially CD-like investments issued by insurance companies. They pay fixed rates of interest in many cases higher than bank certificates of deposit over similar periods.

An important difference is while CDs are FDIC-insured, fixed annuities are only as secure as the insurance companies that issue them; financial strength of the organizations considered, is paramount.  A.M. Best is the rating service most cited. Search the rating service website for the insurance company under consideration here. There are six secure ratings issued by Best. Consider exclusively companies rated A (Excellent) to A++ (superior). For ratings of B, B- (Fair), understand thoroughly your state’s coverage limits. Avoid C++ and poorer rated companies altogether.

Fixed annuities in the case of insurance company insolvency, are backed by the National Organization of Life & Health Insurance Guarantee Associations and each state has a level of protection. For example, in Texas, the annuity benefit protection is $250,000 per life.

The predictability of a set payout and limited risk to principal make MYGAs a popular option for retirees who seek competitive fixed rates of interest.

Fixed Indexed Annuities – “A Cake & Eat Some Too.”

Fixed indexed annuities get under the skin of one financial superstar asset allocator who dismisses stock market losses as no big deal (I mean markets rebound eventually, correct?). Losses don’t appear to be a big concern for him or his clients.

As the granddaddy of financial radio personalities, the gentleman relishes the calls in to his radio show that express concerns about annuities, especially fixed indexed annuities as he gets another opportunity to proudly remind his national audience – “so, with these products, you don’t get all the market upside!” Believe me, he’s all about the upside because markets only move in one direction from where he sits. From where you sit and what Roger Ibbotson believes, there’s a strong probability ahead for lower returns on traditional asset classes which include long-term bonds.

So, what are fixed indexed annuities?

First, they are not products that invest directly in stock markets. They are insurance vehicles that provide the potential for interest to be credited based on performance of specific market indexes. Selections within these fixed annuities allow owners to participate in a fixed percentage of the upside of a market index or earn a maximum rate of interest that’s based on the percentage change in an index from one anniversary date (effective date of ownership), to the next. A strategy identified as “point-to-point.”

Second, fixed indexed annuities are characterized by a ‘zero floor,’ which simply means there’s no risk of market downside. Owners may get a goose-egg of a return for a year, that’s true. However, there’s no need to make up for market losses, either.

As stated in the academic research published by Mr. Ibbotson:

“This downside protection is very powerful and attractive to many individuals planning for retirement. In exchange for giving up some upside performance (the 60% participation rate), the insurance company bears the risk of the price index falling below 0%. The floor is one way to mitigate financial market risk, but also gain exposure to potentially higher equity performance than traditional fixed income investments.”

Third, Roger Ibbotson and his team analyzed fixed index annuities performance compared to periods of outperformance and underperformance for long-term government bonds. They isolated 15 three-year periods where bonds performed below the median like above, where the average 3-year annualized return was 1.87% compared to the FIA average of 4.42%. Through fifteen 3-year timeframes where bonds performed above median, returns for bonds and fixed index annuities averaged 9% and 7.55%, respectively.

Last, the research is limited to a simulation of the net performance of a fixed index annuity tied to a large cap equity index with uncapped participation rates. A participation index rate strategy is mostly effective under strong stock market conditions as interest credited is a predetermined percentage multiplied by the annual increase in a market index’s return. For example, a fixed indexed annuity offers an uncapped point-to-point option with a 40% participation rate. If the chosen market index the participation rate is connected to increases by 10%, your return for the year will be 4%. The participation percentage may be changed annually.

A “point-to-point” cap index strategy incorporates a ceiling on the upside and will not perform as well during periods when stocks are characterized by strong performance. The point-to-point cap index choice is best when markets are expected to provide limited growth potential and provides 100% participation up to the annual cap set by the insurance company. Let’s say a fixed indexed annuity has a 3% index cap rate and is tied to the performance of the S&P 500. For the year, the S&P 500 returns 2%. The interest credited to your account would be 2%, which is under the 3% cap. Under the participation index rate strategy outlined above, interest credited would be less at 40% of the S&P return, or .8%.

Since credited interest increases the original investment and downside protection is provided, your money compounds in the true sense of the definition. As we’ve written previously at Real Investment Advice – compounding works only when there is NO CHANCE of principal loss.

Fixed indexed annuities offer a fixed interest rate sleeve in addition to stock market participation options. There’s the choice to select multiple strategies (to equal 100%) and change allocations every year on your anniversary or annuity effective date.

Generally, annuities are immediate or deferred as well as fixed and variable as described above. Deferred annuities are designed for saving and interest accumulation over long periods, usually 5-10 years. They most popular are outlined here in Part 1. Immediate and guaranteed income annuities which I’ll cover in Part 2, are designed to provide lifetime income and longevity insurance for consumers who are concerned about outliving their retirement investments.

Below are Real Investment Advice and Clarity’s financial guardrails or rules to consider before the purchase of accumulation and income annuities:

1. Annuities tend to get sold, not planned. Annuities are primarily product-sales driven. Comprehensive financial planning which includes your current asset allocation, ongoing savings and investing habits, anticipated income needs in retirement and survivability of investment assets based on estimated life expectancies either for you or you and a spouse, should be a mandatory first step. Most annuity salespeople are not going to undertake a holistic planning approach before an annuity solution is offered; it’s important to partner with a Certified Financial Planner who is also a fiduciary to complete a financial plan before you commit resources to annuities. A plan can determine whether an annuity improves retirement income sustainability and specifically, how much investment to commit. If your plan reflects the probability of meeting your retirement goals at 85% or greater, forgo the annuity and create an action plan to bolster savings, reduce debt or work a year or two longer.
2. Consider fixed indexed annuities as intermediate to long-term bond replacements. Or to improve risk-adjusted portfolio returns during market cycles of extended stock valuations and/or less potential for appreciation in bond prices (like we’re in now). Roger Ibbotson estimated that a 60% stock, 20% traditional bond, 20% fixed indexed annuity allocation returned 8.12% from 1927-2016 in periods where bond returns were below median, compared to a traditional 60/40 portfolio which returned 7.6%. If future returns for traditional risk assets will be muted due to rich stock valuations and lower capital appreciation for bonds (which we believe is the case), a fixed indexed annuity may be employed to replace up to 20% of a total fixed income allocation. A FIA may provide attractive returns compared to stocks and bonds combined with zero downside risk.
3. Avoid or minimize exposure to variable annuities. Variable annuities do not appear worthy of investment in our opinion. Meet with a financial professional, preferably a fiduciary, to create and implement a liquidation or transfer plan.
4. Understand surrender charges, costs, tax and withdrawal penalty implications. Annuities must be considered long-term products designed solely to meet retirement goals. Deferred annuities will include a hefty 5-10 year decreasing annual percentage charge to discourage liquidations. There will be ordinary income taxes incurred and possibly penalties (if younger than 59 ½), upon withdrawals. Charges are incurred for commissions and cost of insurance, too. Most annuities will permit up to 10% annual withdrawals free of surrender charges. It’s important to understand how to withdraw as a last resort if a financial emergency arises.
5. Slow your riders. Riders are supplementary features and benefits that can add anywhere from .35 to 1.50% in additional costs per year. Available riders range from enhanced liquidity benefits (ELBs) which allow surrender-charge free return of premiums in the second year, ADL (activities of daily living such as bathing & dressing), or custodial care withdrawals that provide access to up to 100% of accumulation value without surrender charges, to the most popular – GLWBs or Guaranteed Living Withdrawal Benefits for one life or for you and a spouse. Lifetime income is guaranteed even if the accumulation value of the annuity falls to zero. I have yet to encounter an annuity owner who can explain to me why they purchase riders or how they’re supposed to work. Unless a comprehensive financial plan indicates a 25% or greater probability of outliving your retirement savings (75% success rate), and expected single or joint life expectancies are age 95 or older, paying 1-1.5% a year for a living withdrawal benefits rider seems excessive. If outliving your investment source of retirement income is a concern, there are deferred and immediate income annuities on the market that can fill the gap along with other solutions like reverse mortgages.
6. Seek a second opinion. An annuity is a long-term financial commitment. Before purchase, due diligence is mandatory. A fiduciary professional can outline the pros and cons of your prospective purchase. A deliberate, well-researched decision will minimize regret, later. Contact us for objective guidance.

See? Annuity is not such a scary word. In some cases, it’s the difference between a secure retirement or not. Along with a strategy backed by a comprehensive plan, fixed indexed annuities can be employed to minimize losses or enhance portfolio returns.

Indeed, annuities are complicated. There’s no getting around that obstacle. However, I hope our guardrails will help you gain perspective.

Annuity means ‘check for life,’ and who is against that?

The billionaire Ken Fisher. That’s who.

You may need to think differently.