Did Your
Market Timing Service Get You Out at the Top?
By the
Curmudgeon with the SuperBear
Disclaimer:
Due to increased anxiety caused by the Coronavirus and this
weeks stock market volatility/2-day crash, we will keep this blog post short
and to the point.
Introduction:
The sharp and scary market plunge is clearly depicted by this
chart which is worth more than 1,000 words:
On Thursday March 12th:
·
The Dow industrials shed
2,352.6 points, or 10% to 21,200.62 [1.].
·
The S&P 500 sank 260.74
points, or 9.5%, to 2,480.64.
·
The Nasdaq Composite slid
750.25 points, or 9.4% to 7,201.80.
Note 1. The Dow was down over
520 points in the last 10 minutes of trading to close at the low of the day.
..
After the first circuit breaker kicked in at the open after
the S&P 500 fell 7%, the equity markets resumed trading shortly before 10am
and stocks plummeted yet again. The Feds liquidity injection announcement sent
shares briefly higher before tumbling once again to close at the days lows.
These huge stock declines today came despite the New York Fed
announcing new rounds of liquidity to keep banks afloat. The steep losses this month show that there
has been little remedy provided by governments and central bankers that could
calm jittery investors.
Dow Theory Bear Market
Signal:
The Dow Theory triggered a bear market signal today [2.], when the Dow Industrials joined the
Transportation Average by breaking below their 2018 lows as shown in this
chart:
Note 2. The Dow Theory bear signal is something
Victor anticipated earlier in the week.
He sent me a detailed analysis which I can email to readers on request.
Richard Russells
Primary Trend Index (PTI):
This acclaimed index, which measures the primary trend of the
U.S. stock market, is now maintained by the Aden
sisters who this author respects tremendously for their hard work, honesty
and integrity. As of todays
nightmare on Wall Street (March 12th) it is still (barely) bullish
as per this chart:
Market Timing Overview:
In our last post Did You
Buy the Dip? How is Your Melt-Up Portfolio Doing? (03/10), we noted that all the top market timers were bullish or
neutral at the February 2020 top and none were bearish. As of Wednesday, March 11th Timer Digest evening hotline:
·
The Top Ten Consensus (of
stock market timers) is now Bullish with
4 Bulls, 3 Bears, and 3 Neutral.
·
The Top Long-Term Timers (of
stock market timers) are Bullish with 7 Bulls, 1 Bear, and 2 Neutral.
·
The Top Gold Timers are
Bullish with 5 Bulls.
In fact, Timer Digest
had two BUY recommendations for todays (March 12th) open:
·
Diversified Select Program:
On Thursday, the one third of the Fidelity Money Market Fund balance will be
used to Buy Select Biotechnology (FBIOX).
·
Model Portfolio: On Thursday,
one-eighth of the money market fund balance will be used to Buy the SPDR S&P
500 ETF (SPY) at $273.00; the order good through Friday.
ΰThe moral of this story is that you cant trust market
timing, especially in fast market conditions or when there are unexpected
shocks to the global economy, like the coronavirus and oil price war.
Recommendation for
Investors (not Traders):
We believe the only viable and safe hedge against stock and
other asset class steep declines is cash, CDs, T-bills, or high grade bonds
that you intend to hold to maturity (for my granddaughters Trust account I
have several bonds that mature in 3 to 4 years and are highly unlikely to
default, but they might be called).
Decide how much exposure you want to various asset classes
(stocks, bonds, gold, REITs, commodities, managed futures, etc.) and more or less maintain those positions.
The exception is when you feel a given asset class is
severely overvalued and/or the outlook is very bleak. In that case, its OK to reduce or even
eliminate that asset class from your portfolio.
I did that for Treasury notes and T-bonds which I used to purchase all
the time for clients, my family, friends and myself when I was managing money.
Treasuries were eliminated because the real yield was either negative or only
marginally positive (before taxes).
ΰObviously, I was wrong about the outlook being bleak
when the 10-year T-Note was at 2%, as it is now well below 1%! However, I have no regrets for not buying
T-Notes or any long-term bond.
As a result, Ive built up a sizeable cash/CD/T-bill position
which buffers the losses Im taking on at risk investments. I also own a lot of gold coins and gold
futures contracts through a managed futures fund I own
which is always long gold. Heres what
the latest Aden Forecast (subscription required and recommended) has to
say about the yellow metal:
GOLD IS UNIQUE:
As you know, gold has
traditionally been a safe haven during uncertain
times. For thousands of years its been the safe haven
of choice. And even though gold has been volatile, this time has not been an
exception. Thats primarily due to the fact that gold
is gold. Its durable, its accepted throughout the world, and it has the
longest track record for being the worlds favorite global money and wealth...
dating back to 3000 BC.
During times of war,
revolutions, economic chaos, political upset and devaluations, for example,
gold has always emerged as #1. It has enabled people to flee from one country
to another, taking their savings with them, say in the form of gold coins. Gold
has also maintained its purchasing power for thousands of years.
Gold is currently in
strong demand. The worlds central banks have been piling into gold because
they know the global economic outlook is not good. Theyre trading theyre cash
and bonds for gold. And now, private investors are starting to do the same.
By all indications, this
trend is going to continue in the years ahead. So you
clearly want to hold onto your gold and other precious metals. If you havent bought
yet, its not too late. The bull market is still in its early stages and it has
a lot further to go.
The U.S. dollar and gold
used to move in opposite directions, but that hasnt been the case in recent
years. Overall, however, gold is much stronger than the dollar.
..
Closing Quotes (from
today):
We are beyond the logical, mathematical approach to things,
said Steven Dudash, president of Chicago-based IHT
Wealth Management. Weve got complete overreactions going on because of the
fear of the unknown. When you see that, you cant expect to see a logical
response to interventions, he added.
Markets simply dont know what the next steps are in terms
of the virus spread, said Edward Park, deputy chief investment officer at
Brooks Macdonald. We will see a dip in global growth in Q1 and Q2 and all the
fiscal stimulus out there cant avoid that.
Until there are details on the steps that leadership intends
to pursue to remedy the economic effects of the viral outbreak, equity markets
will be vulnerable, said Carl Tannenbaum, chief economist at Northern Trust.
Markets are likely to remain volatile. The fear coming off
from the coronavirus is going to be something that continues over the next few
weeks at least, said Paul Sandhu, the Asia-Pacific head of multi-asset quant
solutions and client advisory for BNP Paribas Asset Management in Hong Kong.
Comments from the SuperBear:
The biggest crash since 1987 causes the old bear to come out
of his cave. First off, I want to give big thanks to the Curmudgeon and Victor
for keeping the fires of rationality going through years of Fed induced mania.
I just have a few thoughts to add.
First off this is the first time that Ive seen the Fed fail
in its mission to do whatever it takes to keep the markets rolling. A surprise
rate 50 bp cut had no impact and promises of practically unlimited liquidity
could not stop the markets from rolling lower. Now next week expectations are
for another Fed rate cut of 75 bp or maybe even 100 bp to really try to shock
and awe the markets. Even if they just go for a pedestrian 50 bp that brings
the Fed Funds down to 75 bp which doesnt leave much room for further conventional
moves.
I suspect that things will get worse before they get better.
Ive been watching the spread of the coronavirus from the start when it was
still contained in Asia. My concern was the ease of its transmission more than its
lethality. Dead or really sick people have a hard time
spreading viruses. Now weve come to the point where institutions and
businesses are shutting down. Im not sure anyone can estimate how big of an
impact this will have going forward. Cases in the US are still listed as under
2,000 but when more tests become available that number is likely to increase tremendously.
The rest of this month and April could see a pandemic worse than any other in living
memory. I cant imagine this wouldnt be a total disaster for an economy built
on debt and leverage.
As the Curmudgeon mentioned above folks are still not all
that worried. Ive seen client notes comparing the current crash to previous
crashes and stressing that the market have always recovered. That has certainly
been the pattern for the past 30 years, but it is possible that will no longer
be the case. Maybe the Fed can pull another rabbit out of its liquidity hat and
keep the game going a bit longer. There is always a chance since they are
willing to try anything that is ruinous in the long run if it can kick the can a
little further down the road. However, if the Feds multi-decade financial
experiment is coming to an end, we may see a bear market that will rival the
great bear markets of the past (1929-1942; 1966-1982)
Good luck and till next time
.
The Curmudgeon
ajwdct@gmail.com
Follow
the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has
been involved in financial markets since 1968 (yes, he cut his teeth on the
1968-1974 bear market), became an SEC Registered Investment Advisor in 1995,
and received the Chartered Financial Analyst designation from AIMR (now CFA
Institute) in 1996. He managed hedged equity and alternative
(non-correlated) investment accounts for clients from 1992-2005.
Victor
Sperandeo is a historian, economist and financial innovator who
has re-invented himself and the companies he's owned (since 1971) to profit in
the ever changing and arcane world of markets, economies and government
policies. Victor started his Wall Street
career in 1966 and began trading for a living in 1968. As President and CEO of
Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and
development platform, which is used to create innovative solutions for
different futures markets, risk parameters and other factors.
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