Last week the market continued lower despite being deeply oversold, putting one of our Calendar Options positions in adjustment territory for the second time. It’s been a wild ride for EEM: After a decline of more than $3 Wednesday, the ETF dropped another $1.50 in early trade Thursday morning, to a low of $127.92, then rallied back above $130 before retreating again with the rest of the market.

IYR fared better last week. Even though the real-estate ETF fell along with almost everything else, we still were showing a profit of about 8%. If support in the $59 area fails, we’ll probably hit an adjustment trigger before IYR consolidates or rebounds. Tuesday morning’s pending home sales data will likely be the catalyst for any major move, up or down. But it’s EEM that we need to keep our …

“Put your seat back forward.”

Well, my travelin’ days are over for awhile. When boarding the plane in LA to return I noted with sadness George Carlin’s passing. And, when the flight attendants gave the above noted obligatory command I couldn’t help but remember his irony: “How do you do that?” he’d joke.

RIP George.

So, what’s been goin’ on while travelin’? For us conferences, interviews and panel discussions while for Mr. Market, more selling.

To say the market is oversold is an understatement especially with the cumulative negative breadth. [Again, forgive Yahoo/Finance’s math…they know not what they do.]

The cumulative negative breadth is what feeds the McClellan Oscillator’s reading.

…

It is ironic that US REITs year-to-date have outperformed US stocks, non-US developed market stocks, and emerging market stocks, as well as directly owned commercial and residential real estate. Only commodities have outperformed REITs so far this year.

VNQ, ICF, IYR and RWR are still down from 17% to 20% on a trailing 12-month basis, but they provide a 12-month distribution yield of from 3.90% to 4.75% which is more than the current 10-year T-Bond rate of about 3.70%.

How vulnerable REITs are to a reversal of fortune is unclear.  If the economy is as vulnerable to major recession as some say, the rental income of REITs may not prove as strong as expected, which would tend to lower the distribution yield.  Continued outperformance itself, would reduce the yield rate.  …

The practical challenge when tax loss harvesting is maintaining a continuous asset class exposure at target levels without time gaps, while avoiding penalties under the IRS Wash Sale Rule (IRC Section 1091).

The problem with time gaps is that significant market moves can occur in the 30-day waiting period of the Wash Sale rule, which would prevent the portfolio from achieving the risk and return expectations on which the portfolio asset allocation was designed.

The solution to the problem is substitution. Immediately upon realizing a loss in one fund, open a position in an alternate fund that is similar to, but not “substantially identical” to, the fund on which the loss was realized.

After the waiting period of 30 days, close the substitute fund position and reopen the original position (assuming …

It is ironic that US REITs year-to-date have outperformed US stocks, non-US developed market stocks, and emerging market stocks, as well as directly owned commercial and residential real estate. Only commodities have outperformed REITs so far this year.

VNQ, ICF, IYR and RWR are still down from 17% to 20% on a trailing 12-month basis, but they provide a 12-month distribution yield of from 3.90% to 4.75% which is more than the current 10-year T-Bond rate of about 3.70%.

How vulnerable REITs are to a reversal of fortune is unclear.  If the economy is as vulnerable to major recession as some say, the rental income of REITs may not prove as strong as expected, which would tend to lower the distribution yield.  Continued outperformance itself, would reduce the yield rate.  Rising interest rates due to inflation* could reverse the yield spread between REITs and T-Bonds, which would take steam from the REITs.

*

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With the continuation yesterday of Friday’s market weakness, the last of our April 3 calendar-spread bonus trades hit its minimum profit target. Here’s a summary of the three positions: EEM May/June 140 - Reached 20% profit on April 15, less than two weeks into the trade. XLE May/June 77 - Even if entered at the less-than-optimal price of $1.20, this position achieved our 20% minimum profit target on the sell-off in energy that occurred May 1, which was within 4 weeks of entering. IYR May/June 69 - The iShares real-estate ETF proved stronger than we expected, but a week ago the spread was trading near a 20% gain. It would’ve been hard to get an order filled at the target price of $1.50 last week, but today the mid price rose as high as $1.575, ...