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Portfolio Trade Alert For 12-16-21
Trade Alert For Equity & ETF Models Only
With the Fed meeting now behind us, and just options expiration left on Friday, we are using the weakness from the last couple of trading days to fill out the rest of our portfolio for the Santa Claus rally into year-end.
As such we are making 2-key adjustments. First, we are adding slightly to our equity holdings mostly by adding to our S&P 500 index trading position. Secondly, we are rebalancing our bond portfolio to lower volatility and increase yield as we head into 2022.
Equity Portfolio
Sell 100% of GSY (Short-Duration Bond Portfolio)
Add 6% of TFLO (Floating Treasury Bonds)
Increase IEF (Intermediate Treasury Bonds) to 4% of the portfolio.
Increase Preferred ETF (PFF) to 10% of the portfolio
Reduce Apple (AAPL) by 0.5% to take profits.
Add 0.5% to Adobe (ADBE) on earnings-related weakness this morning.
Add 1% of Asana (ASAN) to the portfolio following its recent correction.
Add 2% of the portfolio to the S&P 500 Index ETF (SPY) bringing the trading position to 7%.
ETF Portfolio
Sell 100% of GSY (Short-Duration Bond Portfolio)
Add 10% of TFLO (Floating Treasury Bonds)
Increase IEF (Intermediate Treasury Bonds) to 4% of the portfolio.
Increase Preferred ETF (PFF) to 10% of the portfolio
Add 1% to Technology Select ETF (XLK) bringing total weight to 14%
Add 2% of the portfolio the S&P 500 Index ETF (SPY) bringing the trading position to 7%.
Risk/Reward Range Suggests Short-Term Correction Possible.
Portfolio Trade Alert For 12-10-21
NOTE: Trading alerts are moving to SimpleVisor.com entirely starting January 1st, 2022.
Trade Alert For Both Equity & ETF Models
As noted previously, we will continue to use weakness in the market to add additional exposure to the portfolio in preparation for the year-end rally. Today, we are adding 3% of the portfolio into the equity allocation sleeve.
With the exception of the addition of 1% to our SPY trading position, we are adding to our existing core holdings in both models after recent corrective action. We do expect we could see some additional market weakness next week heading into December options expiration. We will continue using dips to add exposure accordingly.
Equity Model
Increase Netflix (NFLX) by 0.5% of the total portfolio. Model weight is now 2.5%
Add 0.5% to Adobe (ADBE) bringing total portfolio weight to 2.5%.
Ford (F) gets increased by 0.5% to a total weight of 3%.
Costco (COST) also gets increased by 0.5% to a total weight of 3%.
Add 1% to the SPY trading position bringing the total weight to 5%.
ETF Model
Add 1% to LIT (Lithium ETF) bringing portfolio weight back to 3%.
Increase XLK (Technology ETF) by 1% bringing total portfolio weight to 13.5%
Add 1% to the SPY trading position bringing the total weight to 5%
Portfolio Trade Alert For 12-07-21
*** Portfolio Trading Alert *** – Equity Model Only
As noted in this past weekend’s newsletter, we started adding to our equity exposure in the portfolio due to the short-term oversold condition in the market. Furthermore, our “money flow” indicator is about to flip to positive registering a buy signal for the market. (This indicator is in the last stages of development and will be deployed soon for your use.)
After previously taking profits when the “weak sell” signaled was triggered, we are now adding back to those positions now that they have suffered sizable corrections. We are also maintaining our SPY trading position for now as well, which increases our equity exposure to target model weights.
Equity Portfolio
Increase Nvidia (NVDA) to 2% of the portfolio
Same also for AMD (AMD), increase to 2% of the portfolio
Add 1% to Microsoft (MSFT) increasing portfolio weight to 3.5%
Also, add 1% to Marathon OIl (MRO) bring total portfolio weight to 2%.
Increase Raytheon Technologies (RTX) to 2% of the portfolio.
Lastly, add 1% to Albamarle (ALB) bringing the total weight back to 4% of the portfolio.
We added 2% of SPY to the sector and equity models late this afternoon. We are taking advantage of today’s sell-off to add to our position. The market is holding support at the 100-dma and is deeply oversold. We suspect we will see a tradeable rally into next week.
Add 2% of the portfolio in SPY to the current holdings. (Position size increases to 4%)
Over the last couple of weeks, we discussed the potential for some corrective action in the first two weeks of December as mutual funds distribute their annual gains. That selling came a bit sooner than expected, but our previous reduction in equity exposure and hedging reduced our overall volatility. With the deeply oversold condition now present, and the seasonal tendency for a year-end rally, we are now starting to increase our risk exposure accordingly.
We are nibbling at some beaten-up oil stocks, adding a broad market trading position, and continuing to clean up laggards. Over the next week or so, we will look to increase allocations in Healthcare, Technology, Energy, and Financials primarily. Although we will pick up opportunities wherever we find them.
Equity Model
Sell 100% of Johnson and Johnson (JNJ)
Increase XOM to target a weight of 2% of the portfolio.
Initiate a 1% position in MRO (Marathon Petroleum)
Add a 2% trading position in SPY in the portfolio.
ETF Model
Add 1% to XLE bringing the total position weight to 3% of the portfolio.
Add a 2% trading position in SPY in the portfolio.
*** Portfolio Trading Alert *** – Equity Model Only
We sold Verizon (VZ) in the equity model this morning for tax-loss harvesting. We have a lot of gains to offset this year from profit-taking. While we like Verizon fundamentally, particularly the 4% yield, we think it could continue to trade weaker over the next couple of weeks as mutual funds and professional managers do the same. We will likely buy it back in a month as it should benefit from the infrastructure bill and a potential shift to value next year.
We previously put on a small volatility hedge in light of the record number of call options outstanding. At that time we said we would close out that hedge when those options expired. This more we sold the entire hedge of VXX at a small loss. Given that next week is Thanksgiving, and trading volumes will be exceptionally light, we are leaving the portfolios with a heavier weighting of cash to offset risk.
Equity & ETF Models
Sell 100% of the Volatility Index (VXX)
November 17, 2021
*** Portfolio Trade Alert *** Equity Model
This morning news hit that Amazon (AMZN) would not be accepting Visa (V) credit cards issued in the U.K. That news sent the stock immediately lower this morning violating all of our stop-loss levels. While we still have a small gain in the stock, we are selling the remaining shares in our portfolio. We are looking for a replacement in the space and are evaluating some candidates to add.
*** Portfolio Trade Alert *** Equity and ETF Models
Over the last week, we have discussed reducing equity risk slightly by raising cash and adding hedges. As we head into options expiration week, the Thanksgiving holiday, and mutual fund distribution season, we are looking to become a little more defensive by raising cash levels.
Currently, our bonds have gotten extremely overbought short term, so we are trimming our duration back a bit by reducing TLT. We are still fully in the camp that rates will fall next year as the economy slows, so we will use a pullback in bond prices to increase our exposure.
On the equity side of the allocation, we are just reducing our position sizes in some stocks or sectors that are more extremely overbought and triggering short-term sell signals.
Equity Model
Trim TLT from 8% to 6%
Reduce PFF from 10% to 7.5%
Reduce MSFT from 2.5% to 2% of the portfolio.
Taking profits in AMD from 2.5% to 1.75%
Trimming ABBV from 4% to 3.5%
Reducing ABT from 2% to 1.5%
For a second time, we are reducing NVDA from 2% to 1.75%
As noted earlier this week, with the market back to extreme overbought and extended levels, and individual names making outsized moves, we are taking some small profits out of our most egregiously extended positions.
In the equity model, we are reducing CVS Health (CVS) from 3.5% of the portfolio to 3%.
Equity Model
Reduce CVS from 3.5% to 3.0% of the portfolio.
November 2, 2021
*** Portfolio Trade Alert *** Equity & ETF Models
The market is now back to extreme overbought and extended levels. As such, we are now taking some small profits out of our most egregiously extended positions.
In the equity model, we are taking some profits in F, NVDA, ALB, and NFLX back to model weights. We are also selling all of SBUX after it violated our stop levels.
In the sector model, we are reducing LIT by 0.5% as it is overbought like ALB. We remain decently overweight in the basic materials sector.
With the market entering a “melt-up” phase on earnings exuberance, we are adding to our VXX position today to hedge against the currently overbought conditions. With the Fed meeting next week, there is a risk of a short-term sell-off if the Fed appears more hawkish than expected.
Both Models
Add 1% of the portfolio to VXX increasing size to 3% of the portfolio.
October 27, 2021
*** Portfolio Trade Alert *** Equity & ETF Models
This morning we trimmed back on both of our energy exposures (XOM and XLE) back to model weights. The recent run took the positions out of tolerance relative to the portfolio.
We also added a 2% position in VXX (Volatility Index) which has become very suppressed lately. Given the overbought condition of the market, we are looking for a small risk hedge heading into the Fed meeting next week.
This morning we sold 100% of SHY which is under pressure as the market gets more aggressive about pricing in future interest rate hikes. As shown, there is currently a 100% chance the Fed will hike rates twice in 2022, and a 70% chance of three rate hikes.
When the Fed gets more aggressive about rate hikes, the long end of the curve will fall. Therefore, as the 10-year moves toward 1.8-2%, we will become more aggressive buyers of duration. For the meantime, we will leave the money in cash and over the next week or so decide how to deploy it within the fixed income sector.
Fear / Greed Model Rising But Not Yet Back To Greed
Risk / Reward Ranges Show Market Back To Short-Term Overbought
October 14, 2021
*** Portfolio Trade Alert *** Equity & ETF Models
As we kick off earnings season in earnest we are increasing our technology exposure where we have been underweight previously. In the equity model, we are adding 1% to our current holdings of ADBE and initiating a 2% position in AMD due to its breakout above its recent downtrend.
We added 1% of XLP to the sector model. It is turning up on a buy signal from a very oversold condition. The inflationary impulse is likely to fade or at least take a break, arguing for sectors like staples, technology, and healthcare should begin to perform better.
ETF Model
Add 1% of the portfolio to XLP increasing weight to 5% of the portfolio.
October 7, 2021
*** Portfolio Trade Alert *** Equity Model Only
This morning we added 1% to COST and PG. We also bought a new 1% position in WM. All three have nice technical setups. COST and PG are staples and we were underweight staples in the equity model. WM allows us to increase exposure to industrials without taking on China’s risk, as many industrials have.
Equity Model
Add 1% to COST bringing the total weight to 2.5% of the portfolio.
Adding 1% to PG bringing the total weight to 2% of the portfolio.
Initiating a 1% position in WM.
October 6, 2021
*** Portfolio Trade Alert *** Equity & ETF Models
We just reduced our exposure in both portfolios slightly in part because of recent volatility and what we view as a poor risk/reward skew.
In the Equity model, we sold the entire position in UPS. It broke through key technical support and is trading poorly. FDX recently had poor earnings and UPS will likely follow suit when they report on October 26th. We also sold the entire stake of IYT in the ETF model as well.
We also cut JNJ to 1.5% from 2.5%. It has also broken through key technical support, but we like the fundamental story longer-term. We will look for an opportunity to add back into the position once it strengthens technically.
Technical Gauge Drops Into “Buy Territory” For A Bull Trend
Allocation Model Also Moves Into “Buy Zone” For A Bull Market.
Risk / Reward Ranges Reset For New Month – Most Excesses Reversed
September 29, 2021
*** Portfolio Trading Alert *** Equity and ETF Models
As noted in this morning’s Daily Commentary, the recent spike in interest rates has given us a decent opportunity to add to our longer-duration bond portfolios. We have an article coming out on Friday discussing the history of “debt ceiling” debates and the outcome for bonds. With bonds bouncing off support at the 200-dma and oversold, such has historically provided a decent entry point to add exposure.
Equity & ETF Models
Add 1% to both IEF and TLT respectively.
September 27, 2021
*** Portfolio Trading Alert *** Equity and ETF Models
As noted in this morning’s Daily Commentary, with the market triggering its “money-flow” buy signal, we are continuing to increase our exposure in both models. This morning we added a bit more to our Utility exposure which increases our overall portfolio dividend yield and gives us a bit of defensive positioning. We also increased our stakes in energy and financials.
Equity Model
Add 1% to DUK, XOM and JPM bringing total portfolio weight to 2% each.
ETF Model
Add 1% to the current holdings of XLE, XLU, and XLF
The Federal Reserve did exactly as expected yesterday and threaded the needle well on putting “taper on the table” and assuring markets the “punch bowl” wasn’t being taken away just yet.
“There has been a great deal of handwringing by some market participants over the potential market implications of the Fed’s eventual tapering of asset purchases, and a great deal of ink spilled on the topic too. But at the risk of merely contributing to the latter, we hope to assuage those who worry about the former.
In sum, we think that the tapering of Fed asset purchases (likely a $10 billion reduction in U.S. Treasury purchases and a $5 billion reduction in agency mortgages per month) is likely to have minimal market impact at this stage. This is partly because the Fed has done a decent job of telegraphing when tapering is likely to begin (most market participants believe the announcement will come this year), but more importantly it’s because the asset purchase reductions are likely to be trivial when seen in the context of how large the fixed income markets are today, and how overwhelming the demand for income has become.” – Rick Rieder, BlackRock’s CIO of Global Fixed Income
With stocks deeply oversold on a short-term basis, as noted yesterday, and the threat of “taper” largely baked into the recent decline, there is a decent entry point for traders to add exposure near term. As noted, the 50-dma is the only real challenge ahead but will likely be resolved today.
Equity Model:
Add 1% to GS and MSFT bring exposure to 2% each.
Add 1% to GOOG bring model exposure to 3%. (It is 4% in equity portfolio due to price of shares.)
ETF Model
Add 1% to XLF bringing exposure to 3%
Add 2% to XLK bringing exposure to 10.5%.
September 21, 2021
After finally getting a bit of a sell-off to work off the overbought condition, we are beginning to look for opportunities to increase equity exposures in portfolios as we head into year-end.
As Sentiment Trader noted today:
“The broad market is in an environment known as ‘No Man’s Land.’ That means we have a few oversold short-term indicators with several intermediate to long-term indicators that are deteriorating but above a level that creates a fat pitch situation.
Remember the following:
“The markets do whatever they have to do to frustrate the most people.”
There are many more reasons to be bullish than bearish at the moment.
Global liquidity flows remain extremely strong.
October through November are historically strong especially when markets are up 15% or more in the first half of the year.
Interest rates remain low, and even if the Fed does announce taper, it will be minimal by year-end.
Volatility has spiked up recently providing the bulls some fresh “fuel”
Sentiment is negative and AAII sentiment is bearish.
With this backdrop we are beginning to add exposure to portfolios starting with defensive positioning first, to hedge against short-term volatility, and then we will move into more momentum names as markets improve.
Risk / Reward Ranges (Reset For Beginning Of Month)
Technical Gauge Pushing Higher
Fear / Greed Index Rising
September 2, 2021
*** Portfolio Trade Update *** Equity & ETF Model
We added 1% to TLT bringing it to 7% in both models. Technically it looks ready to break higher and has good support directly below with the 50/200 dma’s.
We added 1% ABBV to the equity model. The sharp decline yesterday seems overdone and provides us an opportunity to add.
In the equity model, we took profits on WOOF, selling the entire position. We may revisit it in the future as we like its fundamentals but currently, price action remains very weak.
We also sold our 1% of FANG and replaced it with 1% of XOM. We did this to reduce volatility and align the beta of our energy holdings with the beta of XLE. FANG was a great buy but much more volatile than the sector and market. Also, XOM carries a 3+% yield which increases our dividend payout for the portfolio.
We remain wary of this market. Internals continue to deteriorate, volume remains weak, and technicals are stretched. Therefore, we continue to keep “tweaking” the portfolio to give us relative but reduce our overall risk exposure as well.
This morning we added 1% TLT and 2.5% IEF to both models. We sold GSY down to 2.5% to make room. Our WAVG duration is now 4.5 versus 5.9 for our benchmark. Such is due to today’s commentary:
“The graph below is 30-year UST yields with its 50 and 200 dma’s. The vertical lines highlight the last five times, 30 year yields have witnessed its 50 dma falling below its 200 dma, also known as a “death cross.” In 3 of the last 4 death cross instances yields fell appreciably and reached record lows. The only time they didn’t was in 2017 (red vertical line). At that time yields consolidated to negate the death cross. As shown, on Monday 30-year yields witnessed a death cross.”
Risk / Reward Ranges Show Overbought In Technology
Technical Gauge Remains Elevated
Allocation Levels Remain Greedy
August 13, 2021
*** Portfolio Trading Alert *** – Equity Model Only
This morning we added 1% of AAPL and 2% WOOF (Petco) to the equity model. AAPL looks strong from a technical perspective despite the overall market showing signs of technical weakness. WOOF is also strong technically and relatively cheap fundamentally. They report earnings next week on August 19th.(Hopefully, it’s not a dog!!)
Equity Model
Add 1% of the portfolio to AAPL increasing position size to 3.5%
Deviations from long-term means are getting extreme again. Suggests a correction in leading sectors likely.
Fear / Greed Allocation Increased
August 5, 2021
*** Portfolio Trading Update *** Equity & ETF Model
This morning we reduced our exposure slightly as our indicators are starting to turn back down. We also think, with the Fed constantly yammering about tapering QE, the market struggle to move much higher limiting upside. It’s also worth reminding you we are now in the weakest 3-months of the year. We are reducing our financial sector exposure slightly as the yield curve continues to flatten which will hurt their profit margins.
Equity Model
Sell 100% AMLP
Reduce JPM and GS by 1% of the portfolio each.
ETF Model
Sell 100% of AMLP
Reduce XLF by 1% of the portfolio
This morning DUK reported GAAP EPS of $0.96, which missed expectations of $1.08. However, adjusted EPS of $1.15 beat expectations of $1.11. Revenue for the second quarter was $5.76B, which fell just short of the consensus of $6.26B. Management confirmed guidance for FY21 adjusted EPS of $5.00-$5.30 and an adjusted EPS growth rate of 5%-7% through 2025. The adjusted EPS guidance, at the midpoint, falls slightly below the consensus of $5.19. Regarding the future of DUK, the CEO Lynn Good commented, “Moving forward, we’re leading the most ambitious clean energy transition in North America while providing safe, reliable and affordable energy solutions to our customers and communities across the Southeast and Midwest, enabled by our scope and scale”. We hold a 1% position in the Equity Model.
ALB reported earnings for the second quarter yesterday after the close. GAAP EPS of $3.62 demolished the consensus estimate of $0.85. Revenue came in at $773.9M, which disappointed in comparison to expectations of $787.7M. Although aggregate sales growth was lackluster, lithium sales increased 13% YoY in connection to increased order volume under long-term agreements. Pointing to a positive outlook for lithium sales, management raised guidance for FY21 adjusted EPS to $3.35-$3.70, bringing the midpoint in line with analyst expectations. Guidance for FY21 sales was set at $3.2B-$3.3B, with the midpoint again measuring in line with estimates. The stock is up roughly 5.5% this morning following the earnings results and upbeat guidance. We hold a 2.5% position in the Equity Model.
August 4, 2021
This morning CVS reported GAAP EPS of $2.10, which smashed expectations of $1.71. Revenue was $72.6B in the second quarter versus the consensus of $70.3B. The earnings beat was driven by a combination of sales growth and QoQ operating margin improvement. In addition to the strong results, management raised guidance for FY21 GAAP EPS to $6.35-$6.45 from $6.24-$6.36 previously. Adjusted EPS guidance was also revised upward to $7.70-$7.80, which tops the current consensus of $7.67. We hold a 3.5% position in the Equity Model.
Yesterday after the close, PSA reported core FFO per share for the second quarter of $3.15, which beat the consensus of $2.94. Revenue was $829.3M compared to expectations of $805M. Same store net operating income increased by 20.8% during the quarter, driven an increase of 10.8% in same store revenues and a 15.9% decrease in same store operating costs. Management raised guidance for full-year 2021 core FFO per share to $11.90-$12.30 from $11.35-$11.75 previously, which is about 2% above consensus at the midpoint. Guidance was also raised for FY21 same-store net operating growth to 9.4%-11.9% from 4.8%-7.3% previously. We hold a 1% position in the Equity Model.
August 3, 2021
Yesterday FANG reported GAAP EPS of $1.71, which missed expectations of $2.19. Revenue topped expectations however, coming in at $1.68B versus the consensus of $1.33B. FANG increased its annual dividend by 12.5% to $1.80 per share and continued right sizing its balance sheet by paying down debt during the quarter. Management slightly raised guidance for full-year 2021 production to 363-370 MBOE/d, an increase of 3.2% at the midpoint. Citing an artificial lack of supply in the global oil market, FANG believes maintaining operational discipline is the right strategy moving forward. As CEO Travis Stice put it, “We still believe the best path to long term value creation for stockholders today is achieved through flat oil production, lower costs and return of Free Cash Flow”. We hold a 1% position in the Equity Model.
Technical Guage Remains Elevated Suggesting More Correction Is Possible
Risk / Reward Ranges Show Some Extreme Elevations.
Fear / Greed Allocation Gauge Remains High As Retail Investors Pile In.
PG reported GAAP EPS of $1.13 versus expectations of $1.07. Revenue of $18.96B (+3.9% YoY) beat the consensus of $18.38B. Organic sales growth was 4% while total sales growth was 7% for PG’s FY21. Management guided to FY22 sales growth of 2%-4% YoY, all of which is expected to be organic. Management guided to FY22 GAAP EPS growth of 6%-9%, while core EPS growth is expected to be 3%-6%.
The market is showing a positive reaction to the earnings release and detailed FY22 guidance. The stock is up roughly 3% this morning. We hold a 1% position in the Equity Model.
ABBV reported GAAP EPS of $0.42, far short of expectations of $1.65 for the second quarter. With such a large miss on a GAAP basis it’s worth noting that adjusted EPS of $3.11 beat the estimate of $3.03. Revenue of $13.96B beat expectations of $13.64B. Management lowered FY21 guidance for GAAP EPS by 17% at the midpoint to a range of $6.04-$6.14. However, management raised FY21 guidance for adjusted EPS to a range of $12.52-$12.62. The midpoint is essential inline with the consensus of $12.58. ABBV is down roughly 1.5% this morning following the less than desirable results and guidance. We hold a 3% position in the Equity Model.
July 29, 2021
AMZN reported GAAP EPS of $15.12, easily topping the consensus of $12.32. Revenue missed estimates however, coming in at $113.1B compared to expectations of $115.1B. Operating income similarly disappointed at $7.7B vs. expectations of $7.8B. AMZN expects net sales in Q3 between $106-112B, roughly 8% below the current consensus. Management guided to Q3 operating income between $2.5B-$6B, in contrast with the $6.2B seen in Q3 of 2020. The stock is down 5% in after-hours trading following the disappointing results and guidance. We hold a 3% position in the Equity Model.
We are continuing to increase the duration of our bond portfolio in increments when we get pullbacks to support on 10-year Treasury Rates. This morning we added 1.5% to our position in TLT in both models, bringing it to 5%. We reduced our position in SHY to 7.5% to make room for the additional exposure in the fixed income sleeve.
We also initiated a 2% position in NVDA in the Equity Model. Both models are now around 50% equity exposure.
Equity Model
Initiate at 2% position in NVDA
Add 1.5% of the portfolio into TLT
ETF Model
Add 1.5% of the portfolio into TLT
July 28, 2021
F reported GAAP EPS of $0.14, which smashed expectations of $0.09. Automotive revenue also surprised to the upside at $24.1B versus the consensus of $22.8B. The strong results come after F previously commented on the likelihood of the global chip shortage impacting production during the quarter. F took advantage of strong demand by decreasing incentives and prioritizing a favorable mix of vehicles, which ultimately helped the company beat expectations. Management boosted its FY21 guidance for adjusted operating earnings by roughly $3.5B to the range of $9B-$10B. We hold a 3% position in the Equity Model.
*** Portfolio Trading Alert *** – AeonViZion
After an upbeat earnings report from Alphabet, GOOG was added to the AeonViZion to comprise 27.7% of the model. GOOG continues to create sustained growth in cloud space with a revenue of 4.6 billion, an increase of 54.4% year-over-year. In addition, Alphabet continued to dominate the digital ad space and racked up $50.4 billion in revenue, an increase of 69% year-over-year.
AeonViZion Model
Initiate at 27.7% position in GOOG
July 27, 2021
MSFT reported non-GAAP EPS of $2.17, which beat expectations of $1.92 for the quarter. Similarly, revenue of $46.2B beat expectations of $44.3B. Weaker than expected growth in Azure revenue and a decline in Xbox sales appear to be weighing on the stock despite having beat revenue and earnings estimates. MSFT is trading 2.7% lower in the after-hours session. We hold a 1.5% position in the Equity Model.
V reported GAAP EPS of $1.18 versus the consensus estimate of $1.35. Revenue of $6.1B topped expectations of $5.86B. Payments volume grew 34% versus the year-ago quarter, which was significantly higher than the consensus of 26.2%. We hold a 1% position in the Equity Model.
GOOG reported GAAP EPS of $27.26 compared to expectations of $19.27. Revenue for the second quarter was $61.9B, which smashed expectations of $56.1B. According to the CEO, Sundar Pichai, the strong quarterly revenue was driven by increased online activity from consumers and strength in advertising spend. Assisted by revenue growth, GOOG’s operating margin improved to 31% from 17% in the second quarter of 2021. We hold a 1.5% position in the Equity Model.
AAPL reported GAAP EPS of $1.30, which easily beat expectations of $1.01. This came on the back of revenue of $81.4B versus the consensus of $73.5B. AAPL saw record quarterly revenue in each of its geographic segments and double-digit growth in each product category. iPhone sales surprised the most within the product categories, coming in 14.5% above market expectations. We hold a 2.5% position in the Equity Model.
SBUX reported GAAP EPS of $0.97 versus the consensus of $0.77. Revenue of $7.5B also beat expectations of $7.3B on comparable sales growth of 73%. Management raised its guidance for full year 2021 GAAP EPS to $2.97-$3.02 from the previous range of $2.65-$2.75. SBUX is trading down 3.3% post market despite reporting strong results and lifting guidance. We hold a 1% position in the Equity Model.
UPS reported GAAP EPS of $3.05, which beat the consensus estimate of $2.80. Revenue of $23.4B was slightly above expectations of $23.2B during the quarter. The results are positive, however, management offered guidance for FY21 operating margin of 12.7% which was below market expectations of 14%. UPS is currently trading down roughly 8.5% this morning as a result. We hold a 2% position in the Equity Model.
RTX reported GAAP EPS of $0.69 versus expectations of $0.79 for the second quarter. Revenue came in at $15.9B for the quarter, which beat the consensus of $15.4B. RTX achieved $185M of incremental cost synergies resulting from the 2020 merger. Citing a strong focus on integration execution, management raised its guidance for merger related cost synergies by $200M to $1.5B. Management also raised full-year 2021 guidance for adjusted EPS to $3.85-$4.00, which represents an increase of 9.2% at the midpoint. RTX is trading roughly 3.7% higher this morning after the release. We hold a 1.5% position in the Equity Model.
This morning we added 1% DUK to the equity model bringing the exposure to Utilities to 2%. This action aligns the Equity Model with the ETF Model in terms of Utility exposures.
Buy 1% of the portfolio in DUK
ABT reported Q2 GAAP EPS in line with expectations of $0.66. Quarterly revenue was $10.2B, which beat the consensus of $9.7B. Excluding COVID-19 testing, organic sales grew 11.3% versus the second quarter of 2019. ABT maintained its guidance for full-year 2021 GAAP EPS of $2.75-$2.95. Despite the positive results, the stock is down 2.3% this morning. We hold a 2% position in ABT in the Equity Model.
We are adding to our existing TLT (20-year Treasury Bond) holding today to increase our exposure on this recent pullback in rates. With economic growth likely to have peaked, we feel there is more downside pressure on yields to come by year-end. Given we are very underweight our benchmark in bonds, the minor addition of duration moves us in the right direction.
Equity & ETF Models
Increase TLT from 2.5% of the portfolio to 3.5%.
Netflix (NFLX) missed on earnings ($2.97 vs $3.16) last night but beat slightly on revenues. They also reported mixed news on subscriber growth. Paid subscribers increased by 1.54m versus expectations for 1.12m. However, third-quarter expectations for the change in paid subscribers was +3.5m versus expectations for +5.86m. NFLX is trading down a little more than 1% in pre-market trading. We own NFLX in our Equity Model.
This morning we are reducing exposure slightly in portfolios particularly in the Nasdaq-related areas which is extremely overbought relative to the S&P 500 index. As has been the case with our actions as of late, we continue to tweak exposures to reduce overall risk while still maintaining our core positions.
Equity Model
Reduce ADBE by 1% of the portfolio
Sell 1% of AAPL as it has run well ahead of earnings.
Reduce UPS by 1% of the portfolio
Sell down AMLP from 3.5% to 2% of the portfolio.
ETF Model
Reduce XLV by 1% of the portfolio.
Reduce XLK by 1% of the portfolio.
*** Portfolio Trading Alert *** – AeonViZion
This morning BABA was added to AeonViZion to compromise 12.8% of the model. Although BABA currently has bearish signs in technicals and negative Chinese sentiment. The market continues to discount the stock and is currently trading at a Forward P/E ratio of 22.82 while the rest of the industry trades on average Forward P/E ratio of 60.16. In addition, the Chinese tech conglomerate posted 64% year-over-year in Q4.
AeonViZion Model
Initiate at 12.8% position in BABA
July 19, 2021
***Portfolio Trading Update *** AeonViZion
NEW MODEL – The AeonViZion model is tailored toward aggressive or young investors willing and able to take on more risk. The model reflects a Gen-Z viewpoint that looks for high growth opportunities with a long-term perspective. Disruptive innovation, emerging sectors, and new technologies are the focal points of the model, while maintaining exposure to established companies.
Risk Reward Ranges – Real Estate and Utilities Very Overbought
Fear Greed Gauge Mostly Unchanged For The Week – Still Elevated
Technical Gauge Declines A Bit As Market Advance Slows
July 13, 2021
JPM and GS both released earnings results for the 2nd quarter this morning. We hold a 2% position in each stock in the Equity Model.
JPM reported GAAP EPS of $3.78, which easily beat expectations of $3.18. These results came on revenue of $30.5B, which topped expectations of $29.7B. The EPS was boosted by $0.75 from a net credit benefit of $2.3B due to the release of loan loss reserves, which accumulated earlier in the pandemic but have since been largely unnecessary. This compares to a net credit benefit of $4.2B in the first quarter of 2021. Finally, JPM reduced its FY21 guidance for Net Interest Income to $52.5B from its previous outlook of $55B.
GS reported GAAP EPS of $15.02 versus expectations of $9.95. Revenue of $15.4B, which beat expectations of $12.2B, was driven by record Asset Management revenue and the 2nd highest quarterly Investment Banking revenue to date for GS. Furthermore, the Investment Banking backlog ended the 2nd quarter at a record level. Prior to the strong results, the Board announced on July 12th that it is increasing the quarterly dividend by 60% to $2.00 per share, payable September 29, 2021.
July 12, 2021
*** Portfolio Trading Alert *** – ETF Model
This morning we took some profits in LIT in the sector model as it is overbought and replaced it with XLB which is oversold. Both trades were for .5%. The trade will slightly reduce net exposure as LIT was overallocated and XLB slightly under-allocated versus the model.
In the equity model, we sold NXPI as it performed poorly versus the tech sector and its weakening from a technical perspective. As we discussed this morning the tech sector is overbought as well.
In the sector model, we reduced XLY and XLV by 1% each to reduce exposure to overweight sectors that are overbought.
Given the plunge in yields, there is something not “quite right” with the market. We are taking our DIA trading position off for now at a very small loss to reduce our overall equity exposure. If the current sell off begins to gain some traction we will take further risk reduction actions.
Equity & ETF Model
Sell 100% of DIA
July 7, 2021
*** Portfolio Trading Alert *** – Dynamic Model (Beta Test Termination)
This morning we are liquidating the entire Dynamic Model portfolio. The portfolio algorithm we have been testing has not been operating to the degree that we are searching for. Some of the performance issues are derived from the current “breadth problem” of the market, the other has been the rather rapid rotations with the internals. The algorithm did not compensate adequately for the current environment.
Therefore, we are liquidating the entire model portfolio and will rebuild and relaunch the model by the end of the summer. If you have been tracking the Dynamic model, switch over to the Equity model for now as holdings are not too dissimilar.
We are reducing ADBE back to its original portfolio weight of 2% after a nice run lately that took the holding back to more extreme overbought conditions.
We are increasing AMLP to 2% of the portfolio in the ETF Sector model on the dip this morning to balance our Energy exposure and increase portfolio yield.
Equity Model
Reduce ADBE to 2% of the portfolio.
ETF Model
Increase AMLP to 2% of the portfolio.
*** Portfolio Trading Alert *** Dynamic Models (Beta Test Model)
This morning we are making a couple of changes to the portfolio model at the open.
We are reducing CVS by 50% due to the technical failure at the 50-dma. We like the position going forward but the failure suggests we could see some lower prices to rebuild the position into.
KNX just has not performed well. We took profits previously at higher prices, but we are going to sell the rest of the position today and remove a laggard from the portfolio.
We are light on industrial exposure so we are adding a 3% position in Raytheon Technologies (RTX) which is about to trigger a fairly oversold money-flow buy signal.
With the Biden Administration potentially passing an infrastructure bill in the next couple of months that will fund 5g expansion, we are adding a 3% weight in VZ. Like RTX, it too is in an oversold position and on support and close to a buy signal with a 4% yield.
Dynamic Models
Initiate a 3% position of the portfolio in VZ and RTX.
This morning we sold 1.5% of XOM and replaced it with 1.5% of AMLP in the equity model. We are picking up extra dividends and the technical backdrop looks better on AMLP than XOM.
We added 7.5% of GSY to both portfolios this morning. The purpose is to sop up extra cash and improve our yield in the fixed income portfolio until we decide to increase our duration.
Equity & ETF Models
Initiate a 7.5% position in GSY
June 28, 2021
*** Portfolio Trading Alert *** All Models
This morning we added a 5% trading position in DIA (Dow ETF) in all models. Our cash flow indicators signal an upward trend and historically the first two weeks of July are good for the markets. Beyond mid-July the market tends to consolidate or dip into the fall months, so we added a trading position now versus adding to individual holdings as it may likely be a short-term position.
In our beta testing model (Dynamic) we are adding some financials given the clearance of the stress test last week, and the recent sell-off.
With the markets holding the 50-dma and firming up a bit, we are increasing equity exposure in areas where money flow “buy signals” are triggering. We were underweight discretionary holdings in the Equity and ETF models so those weights were brought up.
In the Dynamic Model we added the same holdings is in the Equity model but also increased exposure to UPS for the transport sector.
Overall, the money flow “sell” signal for the overall market remains in place with a confirming MACD sell signal. While the market is hitting an all-time high, such is not unusual given past cycles. A correction is still possible while the sell signal is in place, so we continue to maintain a slightly higher level of cash currently.
*** Portfolio Trading Update *** Dynamic Model (Beta Portfolio)
The Dynamic Model, that we launched in January has had a bumpy start with the model algorithm getting whipsawed a good bit by the Nasdaq selloff in February and March, and then the rotational trade over the last month or so. However, we are honing in on the model allocation and should have a functional model in place by the end of the year.
Trades
Initiate a 3% position of the portfolio in KHC, ADSK, and UNH.
*** Portfolio Trade Alert *** Dynamic Model (Beta Test Portfolio)
We continue working on getting this model balanced correctly, and are making some additional rebalancing changes this morning. We also got stopped out of our GOLD and SLV trades.
Initiate a 1.5% position in AVGO
Sell 100% of SLV
Sell 100% of JPM
Sell 100% of GOLD
Initiate a 1.5% position in AMAT
Sell 100% of MCHP
Add 1.5% to OSTK
Add 1.5% to QRVO
Reduce FANG, XOM, MRO, and KMI by 50% each.
Add 1.5% to CVS
Sell 100% of TPR
Note: There was an error in the transaction report on FANG. On 6/10/21 we sold 18 shares of FANG at $87.245 but the system did not report the transaction. We caught the error in today’s rebalance.
*** Portfolio Trade Alert *** Equity & ETF Models
We are rebalancing exposures in the Equity and ETF models slightly this morning.
This morning we adjusted our models to reduce commodity risk. in the Equity model, we sold all of KMI (1.5%), and we were stopped out of GOLD (2%). We added 1% of CVS which is turning on a nice buy signal and in a sector we like. In the Sector model, we sold 1% each of AMLP and XLE. Our equity exposure is just north of 50%.
As discussed over the last few weeks in our weekly newsletter, we are coming upon the confluence of daily and weekly signals turning negative for a wide swath of sectors, stocks, and broad indexes. As such, we are reducing our net exposure by 3.5% to 53% in both models. At the same time, we are adding to a few sectors/stocks that have positive technical outlooks.
Equity Model:
AAPL – reduce position by 1/2% of the portfolio.
ABBV – increase the position by 1% of the portfolio.
ADBE – reduce position by 1/2% of the portfolio.
ALB – reduce position by 1 and 1/2% of the portfolio.
FANG – reduce position by 1/2% of the portfolio.
CVS – increase the position by 1/2% of the portfolio.
GOLD – increase by +1 of the portfolio.
JNJ – increase the position by 1/2% of the portfolio.
MSFT – reduce the position by 1/2% of the portfolio.
PSA – reduce the position by 1/2% of the portfolio.
RTX – reduce the position by 1/2% of the portfolio.
UNP – sell 100% of the position.
UPS – increase the position by 1% of the portfolio.
V – reduce the position by 1/2% of the portfolio
Sector Model:
XLV – increase the position by 2% of the portfolio.
XLK – reduce the position by 2.5% of the portfolio
LIT – reduce the position by 1% of the portfolio
IYT – reduce the position by 1/2% of the portfolio
XLB – reduce the position by 1/2% of the portfolio
XLE – reduce the position by 1/2% of the portfolio
XLF – reduce the position by 1% of the portfolio
XLI – reduce the position by 1/2% of the portfolio
XLU – increase the position by 1% of the portfolio
Dynamic Model
JPM – reduce the position by 1/2% of the portfolio.
XOM – reduce the position by 1/2% of the portfolio.
MRO – reduce the position by 1/2% of the portfolio.
SLV – initiate a 2% position of the portfolio.
KNX – sell 50% of the position.
JNJ – increase position by 1/2% of the portfolio.
ALB – reduce by 1% of the portfolio.
GOLD – initiate a 2% position of the portfolio.
Money Flow Signal
I have been getting many emails lately about how to gain access to our proprietary money flow indicator that Mike and I use to manage our client portfolios.
We hear you and it is coming.
We have 2-huge projects underway currently with our programmers.
A complete website redesign to improve the look, feel speed, and efficiency of the site.
Integration with Interactive Brokers so that you can have access to multiple models on the site and have them automatically traded for you. OR, you can manage your own portfolio and have full reporting on the site.
We have many more features we are adding to the site as well from curated stock lists, to portfolio model management and model backtesting.
AND YES….We are currently working on the RIA PRO Money Flow indicator that you will have access to once we get all the bugs worked out of the coding. Here is a snapshot of where we are currently.
Click to enlarge
Thank you for your patience and for using our service. We are constantly working to improve the site into a “must-have” tool for investors.
Your comments, criticisms, and suggestions are ALWAYS welcome.
We closed out the remainder of our QQQ position as our indicators are now aligning for the next sell signal. We should begin to see technology underperform relative to the broad index over the next couple of weeks.
With our “money flow” buy signal now getting fairly elevated we trimmed off another 1% of our QQQ position this morning in both models. We will likely exit the entire position by the end of the week.
In the Equity model, we also reduce Ford (F) by 1.5% (down to 2% of the portfolio) to take profits after a strong price surge last week.
*** Portfolio Trade Update *** – Dynamic Model (Beta Test) Only
We recently added exposure for the “money flow” buy signal which worked well. However, that signal is now beginning to get extended in some stocks and oversold in others. Therefore, we are rebalancing the model by selling/trimming overbought stocks and adding to oversold positions.
(NOTE: I had a trade error and bought SWKS rather than selling. I have corrected that error.)
Full Portfolio Rebalance
FANG – Add 1% to the position
MRO – Add 1% to the position
AMZN – Sell 50% of the position
NEE – Sell 50% of the position
QRVO – Reduce portfolio position by 50%
GOOG – Reduce portfolio position by 50%
SWKS – Sell 100% of the position
MCHP – Sell 50% of the position
AAPL – Reduce by 50%
MSFT – Reduce by 50%
ETSY – Sell 100% of the position
ALB – Add 1% of the portfolio to the position
SQ – Sell 100% of the position
ABBV – Add 1% of the portfolio to the position
BRK.B – Add 1.5% of the portfolio to the position
WMT – Sell 100% of the position
CRM – Sell 100% of the position
TPR – Add 1.5 % of the portfolio to the position
KNX – Add 1% of the portfolio to the position
KMI – Add 1.5% of the portfolio to the position
XOM – Add 1.5% of the portfolio to the position
NFLX – Sell 50% of the position
ADBE – Sell 50% of the position
PG – Sell 50% of the position
JPM – Add 1% of the portfolio to the position
OSTK – Sell 50% of the position
May 27, 2021
COST reported GAAP EPS of $2.75, which topped the consensus estimate of $2.34. Revenue of $45.3B beat expectations of $43.8B, while membership fees increased 11% YoY, coming in 3.1% above the consensus estimate. We currently hold a 1.5% position in COST in our equity model.
This morning we reduced our 4% QQQ position in both models by 1% to 3% of portfolio. The technical signals that led us to buy are getting extended, so we are just taking some profits. When our signals begin to suggest a “sell signal” is approaching we will remove the rest of the position.
We are also adding 2% AMLP in both models as it technically looks strong and we think inflationary stocks will have decent relative outperformance in the coming days. This is a trade for a near-term bump in inflationary pressures and picking up an 8% dividend yield at the same time.
The buy signals on the Dow and S&P are not as extended as the NASDAQ.
Equity & ETF Models
Reduce the 4% position in QQQ to 3% of the portfolio.
Click the link above to add TPA Daily Reports and Long/Short trading ideas to your subscription.
REASONS TO BE CAUTIOUS. MITIGATING FACTORS. SIGNALS TO WATCH FOR REAL PROBLEMS.
Since March 23, 2020, the U.S. stock market has enjoyed a consistent rally. The S&P500 is up 87% since the Covid-19 March 2020 panic low. Many investors, money managers, strategists and analysts are rightfully concerned about the rally’s longevity and the levels of equity prices. Examining the measures TPA has used for over a decade, TPA is also concerned. At the same time, TPA is mindful that many mitigating factors are supporting the current rally. Some of these factors are historic. In this report, TPA will examine why clients are justified to be cautious, while acknowledging the factors that have and do support stock prices. Finally, TPA will provide signposts that clients should monitor to determine when the likelihood of a sell-off will increase.
Caution
Historically high valuations
Bubble characteristics
The level of margin used by stock investors is at a historic high
Mitigating factors
Reduced number of shares for investors to buy
FED activities
Fiscal stimulus
Low rates
What to watch for that things are changing
FED tapering or tightening
House price declines
Sustained weakening in consumer demand
Technicals.
Sustained risk-off signals
50 DMA’s of the major indexes starting to decline
Earnings announcement show negative price bias
Junk Bond Risk premium widening
May 26, 2021
Amazon (AMZN) has reached an agreement to acquire MGM for $8.45B. The move will strengthen the positioning of Prime Video versus competitors in the ongoing “streaming wars.” AMZN will receive a catalog of more than 4,000 movies and 17,000 TV shows from the acquisition.
Ford (F) is trading higher this morning as they reaffirmed their commitment to electric vehicles (EV). Further, they intend to hit long-term operating margin goals, despite the ramped-up EV production and R&D expenses.
“The company said during an investor day on Tuesday it will spend $30 billion on electric vehicle development — including battery development — by 2025. Previously, the auto giant said it would spend $22 billion on its EV ambitions by 2023. The company anticipates that 40% of its global vehicle volume will be fully electric by 2030 fueled by new models of the electric Mustang Mach-E and F-150“- Yahoo Finance
May 24, 2021
Feature Upgrade – Reminder
In case you missed it, we have now put a full technical overview under the RESEARCH / CHARTS tab. The new charting system now allows you to save your technical setups and has a wide range of indicators to choose from – so customize your layouts the way you like them. Then click the TECHNICAL TAB to see a full technical review of the stock you are looking at.
Technical Gauge (Now live under the Macro/Market Internals Link)
Fear/Greed Gauge (Also Live)
Risk / Reward Ranges – XLK, XLC, and XLY now in buy territory.
May 20, 2021
*** Portfolio Trading Update *** Equity Model (Updated)
We added 1% to Ford (F) increasing our total position to 3%. The stock broke out of its previous downtrend and pushed above the 50-dma. We expect that at some point, the company will re-establish its dividend which will help total returns in the future. For now, it is a trading position until that transition occurs.
Equity & ETF Models
Add 1% of the portfolio into F increasing total weighting to 3%.
May 19, 2021
*** Portfolio Trading Update *** Equity & ETF Model
In both models we added 2.5% of TLT and 1% QQQ, bringing QQQ up to 4%. We are adding TLT in part for technical reasons as it’s very close to its 200 dma and getting ready to turn up on a money signal. Further, it may provide a little insurance if the recent downtrend in equities continues.
Equity & ETF Models
Initiate a 2.5% position in TLT
Add 1% of the portfolio into QQQ increasing total weighting to 4%.
May 18, 2021
*** Portfolio Trading Update *** Equity Model Only
We trimmed back CVS to model weight into the market close today (2% of the portfolio) after a big move higher. We still like the position longer-term on a fundamental basis but it needs a correction to add to the position.
Note: The full history of the Technical Gauge and Fear Greed Gauge is now under Macro/Market Internals. We are working to have them overlaid against the S&P 500 index.
Technical Gauge Is Still High But Has Declined
Fear/Greed Gauge Is Back Into The “Neutral Zone”
Risk/Range Analysis Shows Technology & Discretionary As Opportunistic
May 14, 2021
*** Portfolio Trading Update *** Dynamic Model (Beta Test)
The Dynamic Model, launched in January, is still in beta testing.
We are closing out the rest of our position in LEN after a huge run and starting to see relative weakness in pricing.
Dynamic Model
Sell 100% of LEN
May 13, 2021
*** Portfolio Trading Update *** Equity & ETF Model
We are continuing to build a trading position in QQQ for an approaching “buy signal” on our “money flow” indicator. After our initial add of 2% of the portfolio, we are increasing the position by another 1% bringing the total portfolio weight to 3%.
Equity & ETF Models
Add 1% of the portfolio to the existing position in QQQ
May 12, 2021
*** NEW FEATURE UPDATE ***
Every week in the newsletter we publish the FEAR / GREED Gauge and our TECHNICAL GAUGE
We have gotten a lot of requests for the history of gauges. We have now published them under the MACRO tab along with our other market indicators.
We will be adding a comparison to the S&P here soon, but we wanted to let you know these two charts are now available.
Click to enlarge images
Menu
Guages
*** Portfolio Trading Update *** Dynamic Model (Beta)
Reminder note:
The Dynamic Model, launched in January, is still in beta testing. We are working through the modeling of the portfolio methodology. We should have the model finished by the end of this year as we work through various market dynamics and weightings.
Currently, the performance of the model is not working as expected due to the shift in inflation, and economic, expectations. As such, we are tweaking the model to compensate. However, it will take a few months before that alignment to the benchmark is complete.
Dynamic Model
Taking profits in CVS and reducing the position from 3% to 2% of the portfolio.
In today’s 3 Minutes on Markets & Money we discussed that the NASDAQ is relatively oversold versus the S&P and DJIA.
The graph below helps provide some risk levels on the NASDAQ (QQQ). Since the market rout last March, QQQ has fallen below its 50-day moving average three times. The second graph shows its deviation from the 200-day ma. It is still about 10% above the average. As discussed, the NASDAQ is over-sold on a short-term basis but not a long-term basis. There is a potential opportunity here but it entails a good eye on risk management.
We are going to build into a position of QQQ over the next several trading days looking for a relative pickup in performance relative to the S&P 500. We are starting with a 2% position in QQQ and will add to it if we get further weakness.
Equity & ETF Model
Initiate a 2% trading position in QQQ
May 10, 2021
*** Portfolio Trading Update *** All Models
We are taking some profits in the Equity and ETF Models in more grossly extended positions. In the Equity model, we are paring back to model weights of 2% in UPS and ALB back to 4% of the portfolio. In the ETF model, we reduced IYT (Transportation) back to model weight as well.
In the Dynamic model, we added to FANG and initiated a new position in MRO as we continue to rebalance that portfolio as well.
Fear/Greed Gauge Still Elevated But Off Of Recent Highs
Risk/Reward Ranges Not Optimal – But Technology Has Worked Off Extremes
May 7, 2021
*** Portfolio Trade Update *** Dynamic Model
With our “money flows” on some of the technology names getting very oversold, we are adding some exposure back to holdings that we previously sold at higher levels. We are also adding a bit more to basic materials with an addition of Linde (LIN).
*** Portfolio Trade Update *** All Models (Update)
In the Equity and ETF models we are adding to our “inflation” plays by adding a starter position to Barrick Gold (GOLD) in the equity portfolio and adding to Industrials (XLI) in the ETF Model.
In the Dynamic Model, after a selling half our stake in SQ at higher prices, we are adding back to our holdings. We are also adding back to ALB with the recent selloff taking our position size back to 3%.
Equity Model
Initiate a 1% “Starting” position in GOLD
ETF Model
Increase XLI from 2% to 3% of the portfolio.
Dynamic Model
Increase SQ from 1.5% to 3% of the portfolio.
Increase ALB to 3% of the portfolio.
May 5, 2021
ALB reported GAAP EPS of $0.84 compared to the consensus estimate of $0.80 per share. Revenue came in above consensus at $829.3M versus expectations of $757.1M. Despite beating top and bottom-line estimates, the stock is currently trading 2.5% lower post-market. Management’s decision to leave fiscal year 2021 guidance unchanged appears to be weighing on the stock.
May 4, 2021
CVS reported GAAP EPS of $1.68, which beat expectations of $1.33. Revenue also beat expectations, coming in at $69.1B versus the consensus of $68.35B. In addition to the positive figures, CVS raised full-year guidance for GAAP EPS to $6.24 to $6.36 from $6.06 to $6.22. This represents an increase of 2.6% at the midpoint as well as a tightening in the range of guidance. The stock is currently up 2.8% pre-market.
Yesterday we reported FANG fell short on EPS estimates but beat revenue expectations. The paragraphs below from Bank of America provide a nice summary of FANG’s earnings report and their rationale for slightly increasing the price target to $104 from $100 per share.
May 3, 2021
FANG reported GAAP EPS of $1.33, which missed the consensus estimate of $1.89. Conversely, revenue of $1.2B beat expectations of $1.02B. Today FANG announced the divestiture of three of its non-core operating assets for total consideration of $832M, which will help the company accelerate its debt reduction program and continue strengthening its balance sheet.
*** Portfolio Trade Update *** Dynamic Model
Diamond Back Energy (FANG) is going to report earnings this week and we expect a substantial beat of earnings. With a fairly close stop-loss, and the MACD about to register a buy signal, the risk-reward is favorable.
We were stopped out of PINS and PLTR after selling 50% of the positions a couple of weeks ago.
With the breakout of the consolidation of ABBV, we are adding a 3% weight to the portfolio. The same for WMT which just broke out of a downtrend from previous all-time highs.
After taking profits previously in CVS, JNJ and PG, we are increasing those positions back to size for the next “buy signal.”
Buy 1.5% of FANG with a stop-loss at $73.50
Selling 100% of PINS and PLTR – violations of stop-loss after previous 50% sells.
Initiate a 3% position in ABBV
Initiate a 3% position in WMT
Increase JNJ, CVS, and PG from 1.5% of the portfolio to 3%.
Risk / Reward Ranges Reset For May – Long-Term Deviations Unsustainable.
*** Portfolio Trade Update *** All Models
In the Equity and ETF Models, we are reducing Real Estate just a “smidge” to take profits in a sector that has gotten extremely overbought. In the Dynamic Model, we sharply reduced equity exposure with the previous sell signal. With the next “buy signal” approaching, we are looking to add to fundamentally strong stocks that got hit recently during earnings announcements, and are holding near support levels.
We are also initiating two new positions in the Dynamic of KNX (Knight Transportation) and OSTK (Overstock.com). With the demand for freight very high, we like the transportation sector and have no previous exposure. Overstock is an interesting play because if they sell off their “retail” business, we can acquire their “blockchain” business essentially for free. We are starting with 1/2 positions and will add to accordingly.
Equity Model
Reduce PSA from 2% to 1.5% of the portfolio.
ETF Model
Reduce XLRE from 3% to 2%.
Dynamic Model
Initiate a 1.5% position in OSTK
Initiate a 1.5% position in KNX
Increase NFLX from 1.5 to 3% of the portfolio.
Increase JPM from 1.5% to 3% of the portfolio.
ABBV reported GAAP EPS of $1.99, which easily beat expectations of $1.47. Revenue of $13B came in slightly above the consensus estimate of $12.8B. Management has raised guidance for full-year 2021 EPS to $7.27-$7.47 from $6.69-$6.89, an increase of 8.5% at the midpoint.
XOM reported GAAP EPS of $0.64 for the first quarter of 2021, which beat expectations of $0.57. Revenue also beat expectations, coming in at $59.2B versus the consensus of $56.5B. The positive results were driven by a combination of higher commodity prices and XOM’s focus on structural cost reduction.
April 30, 2021
*** Portfolio Trade Update *** All Models
In the Equity and ETF Models, we are reducing Real Estate just a “smidge” to take profits in a sector that has gotten extremely overbought. In the Dynamic Model, we sharply reduced equity exposure with the previous sell signal. With the next “buy signal” approaching, we are looking to add to fundamentally strong stocks that got hit recently during earnings announcements, and are holding near support levels.
We are also initiating two new positions in the Dynamic of KNX (Knight Transportation) and OSTK (Overstock.com). With the demand for freight very high, we like the transportation sector and have no previous exposure. Overstock is an interesting play because if they sell off their “retail” business, we can acquire their “blockchain” business essentially for free. We are starting with 1/2 positions and will add to accordingly.
Equity Model
Reduce PSA from 2% to 1.5% of the portfolio.
ETF Model
Reduce XLRE from 3% to 2%.
Dynamic Model
Initiate a 1.5% position in OSTK
Initiate a 1.5% position in KNX
Increase NFLX from 1.5 to 3% of the portfolio.
Increase JPM from 1.5% to 3% of the portfolio.
ABBV reported GAAP EPS of $1.99, which easily beat expectations of $1.47. Revenue of $13B came in slightly above the consensus estimate of $12.8B. Management has raised guidance for full-year 2021 EPS to $7.27-$7.47 from $6.69-$6.89, an increase of 8.5% at the midpoint.
XOM reported GAAP EPS of $0.64 for the first quarter of 2021, which beat expectations of $0.57. Revenue also beat expectations, coming in at $59.2B versus the consensus of $56.5B. The positive results were driven by a combination of higher commodity prices and XOM’s focus on structural cost reduction.
April 29, 2021
AMZN reported first quarter GAAP EPS of $15.79 as compared to the consensus estimate of $9.61. Revenue of $108.5B (+43.7% YoY) came in well above expectations of $104.6B. For the second quarter of 2021, AMZN has set guidance for revenue of $110-$116B, or 24-30% growth YoY. The stock is currently trading 4.7% higher in the post-market session based on the strong results.
April 28, 2021
PSA reported core FFO of $2.82 per diluted common share, which beat expectations of $2.71 per share. Revenue of $647.8M missed the consensus estimate of $759.3M. PSA saw same-store revenue growth of 3.4% YoY. The company acquired ezStorage for $1.8B during the quarter, which the CEO- Joe Russell, referred to as “one of the highest quality self-storage portfolios in the United States”.
AAPL reported GAAP EPS of $1.40, which easily beat the consensus estimate of $0.98. Revenue of $89.6B beat the consensus estimate of $77.3B. Further, revenue beat expectations in each major product category. In addition to the positive top and bottom-line data, AAPL raised its dividend to $0.22 per share (+7%).
F reported GAAP EPS of $0.81 for the first quarter of 2021, which smashed the consensus estimate of $0.18. Automotive revenue also came in above expectations, measuring $33.6B versus expectations of $32.2B.
Despite the strong results, the stock is down 2.9% in the post-market session. John Lawler, CFO, commented that the semiconductor shortage facing the auto maker will likely get worse before it gets better- due to a fire that occurred in March at supplier plant in Japan. The company expects the shortage to bottom out in the second quarter and improve throughout the rest of the year, but now expects to lose up to 50% of its planned second quarter production.
April 27, 2021
V reported GAAP EPS of $1.38, which beat the consensus estimate of $1.28. Revenue came in at $5.7B (-2.6% YoY), finishing slightly above expectations of $5.56B. Payments volume increased 11% YoY, while total processed transactions increased 8% YoY. Conversely, cross-border total volume decreased 11% YoY.
MSFT reported GAAP EPS of $2.03 versus expectations of $1.77. Revenue of $41.7B (+19.1% YoY) beat the consensus estimate of $40.85B.
GOOG reported GAAP EPS of $26.29, which beat the consensus estimate of $15.67. Revenue of $55.3B (+34.4% YoY) came in well above expectations of $51.7B.
RTX reported GAAP EPS of $0.51, which missed the mark by $0.30. Revenue of $15.3B was slightly below expectations of $15.4B. With first quarter sales and adjusted EPS coming in above management’s expectations, RTX has boosted the low end of its 2021 guidance for sales and adjusted EPS.
UPS reported impressive first quarter results this morning. GAAP EPS of $5.47 beat expectations of $1.68, while revenue of $22.9B similarly beat expectations of $20.7B. Average daily volume increased by 14.3% YoY. Of note, $2.70 of the EPS was driven by a reduction in the pension liability arising from re-measurement required under the ARPA. The stock is currently up 7.2% in pre-market trading.
April 26, 2021
NXPI reported first quarter GAAP EPS of $1.25, which beat expectations of $1.21. Revenue also beat expectations, coming in at $2.6B versus the consensus of $2.5B.
*** Portfolio Trade Alert ***
Both Equity and ETF Models
We are selling 100% of our gold position in IAU. We bought it for a trade and it looks as if that move has been completed. Taking the small gain and will re-evaluate the position for another opportunity.
KMI released its earnings data yesterday after the market close. GAAP EPS of $0.62 smashed market expectations of $0.23, and revenue of $5.2B ended up much higher than expectations of $3B. A driving factor behind the stellar results was the winter storm that hit Texas in February. Even though KMI recognized that benefit as temporary, the firm raised its quarterly dividend by 2.9% to $0.27 per share.
April 21, 2021
NEE reported earnings for the first quarter of 2021 this morning. GAAP EPS of $0.84 beat expectations of $0.55 per share, while revenue of $3.7B missed expectations of $4.9B. Management has guided to adjusted EPS between $2.40 and $2.54 for fiscal year 2021 with 6% to 8% growth in adjusted EPS in 2022 and 2023.
VZ reported GAAP EPS of $1.27 compared to expectations of $1.28, a slight miss. Revenue for the first quarter was $32.9B (+4.0% YoY), which beat estimates by $440M. VZ saw wireless post-paid net adds of -170k versus expectations of +82k for the quarter.
April 20, 2021
NFLX reported GAAP EPS of $3.75, which beat expectations by $0.78. The firm reported revenue of $7.2B for the first quarter of 2021, which came in $20M above the average estimate. Looking beyond the positive top and bottom-line figures, paid net additions for the quarter were 4M versus Management’s guidance of 6M. NFLX is currently trading almost 10% lower in the post-market session.
*** New Feature ***
(You may need to log out and log back in to see the new Technical Analysis)
We have added a new Technical Overview under RESEARCH/CHARTS which provides buy/sell analysis based on a range of technical indicators.
Click Image To Enlarge
ABT reported GAAP EPS of $1.00, which beat the average estimate by $0.09. However, revenue of $10.5B missed analyst estimates by $170M. Organic revenue growth was 32.9% YoY including COVID-19 testing related effects, and 5.7% YoY excluding COVID-19 testing related effects.
JNJ reported GAAP EPS of $2.32, which beat the average estimate by $0.22. Similarly, revenue of $22.3B beat analyst estimates by $280M. The positive results were led by above market growth of the Pharmaceutical business and continued recovery in Medical Devices, according to the CEO, Alex Gorsky.
PG reported GAAP EPS of $1.26, which beat by $0.07. Revenue also beat estimates, coming in at $18.1B versus the expectation of $17.95B. Organic sales growth increased 4% YoY; 2% of this was driven by increased prices and 2% by positive product mix.
April 19, 2021
*** Portfolio Trade Update ***
As noted in this past weekend’s newsletter, our “money flow” buy signal is very extended and is starting to roll over. As such we are now beginning to cut exposure in portfolios and raise cash levels. We are preparing to add a short-S&P 500 index position once the “sell signal” engages.
We removed half of our 5% SPY position in both models this afternoon, bringing them both down to 2.5%. Our money flow models will turn bearish over the next day or two and we decided to take some profits.
April 14, 2021
*** Trading Update – Dynamic Model ***
Taking some profits in LEN and SQ which have had big runs lately and are extremely overbought. Adding a position of MSTR with a stop at $675 to potentially trade against the Coinbase IPO. Technically signals are oversold and turning up so there is some upside to about $900 as long as current uptrend support holds.
Take Profits – reduce LEN to 1% of the portfolio.
Take Profits – reduce SQ to 3% of the portfolio.
Initiate 5% of MSTR with a stop at $675
JPM reported GAAP EPS of $4.50, which beat analyst estimates by $1.38 or 44%. Revenue came in at $32.3B, 6.6% above the average estimate of $30.3B. The results were driven by a large decrease in loan loss reserves of $5.2B (contributing $1.28 to EPS).
GS reported GAAP EPS of $18.60, which came in 86% above analyst estimates. Revenue for the first quarter was $17.7B compared to estimates of $12.7B, a 39% surprise.
In both cases the strong results were driven by record Investment Banking, Trading, Asset Management revenues and a significant increase in Global Markets revenues. We hold 2% of each stock in our Equity Model.
Just prior to the initiation of the “money flow buy signal,” we added two leveraged index positions to the Dynamic Model. With the sharp rally, and with markets back to more extreme overbought conditions, we are taking those profits and reducing equity risk a bit.
Dynamic Model
Selling 100% of QLD and SSO
PORTFOLIO TRADING UPDATE – 04-06-21
We added 2.5% of IAU this morning in both models. Gold is setting up nicely on a technical and money flow basis with reliable stop-loss levels not far below. The trade also aligns with the thought that the market is looking beyond the next few months of strong economic data and questioning whether the reflation trade will still have legs come later summer and fall.
EQUITY & ETF MODELS
Initiate a 2.5% position in IAU / Stop-Loss is $16
NOTICE – SITE DATA ISSUE!
We are having a data issue this morning on numerous pages.
Please bear with us as we fix the problem.
PORTFOLIO TRADING UPDATE – 04-05-21
We sold TLT this morning in both portfolios. We had TLT on a tight leash and given strong economic data and money flows were rolling back over on TLT, we thought it best shorten-duration in portfolios back to previous levels. We are significantly underweight our benchmark weight in terms of bond duration at the current time.
Wishing you a very “Good Friday” and a Happy Easter.
As noted yesterday, we added to individual positions yesterday within portfolio models, and today we added our “trading index” positions to all models. As noted, with the quarter-end rebalancing behind us, and with April being one of the strongest performance months of the year within the seasonally strong cycle, we are upping exposure short-term to participate with a breakout to new highs.
Equity Model:
Reduced SHY to 10% of the portfolio
Added a 5% position in SPY
ETF Model
Reduced SHY to 10% of the portfolio
Added a 5% position in SPY
Dynamic Model
Added 3% TSLA
Added 1/2 position (3%) of SSO to the portfolio.
Added 1/2 position (3%) of QLD to the portfolio.
March 31, 2021
*** Portfolio Trading Update – All Models***
With our S&P 500 “money flow” models turning positive, along with money flows, we are adding exposure to portfolios for what tends to be a historically strong April period. We are doing this in two phases – adding individual positions today, and shortly, we will add trading index positions in SPY and QQQ.
Equity Model:
Increased ALB to 4% of the portfolio.
Initiated a 2% in NXPI
Initiated a 2% in F
Selling 100% of CRM
ETF Model
Added 1% to LIT increasing weight to 4%
Dynamic Model
Increased AAPL from 3% to 3.5% of the portfolio
Added to SQ increasing weight to 3.75% from 3%
Added to ALB increasing its weighting to 3.5% from 3%
While our S&P indicator is still in sell mode, energy and financials, are starting to turn up. They went into sell mode well before the broader market so are coming out sooner. As such, we added back to energy and financials.
Equity Model:
Added .5% to KMI, XOM, and FANG
Added .5% to GS and JPM
ETF Model
Added 1% to XLE and XLF
Dynamic Model
Added .5% to KMI and XOM
Added .5% to JPM
March 24, 2021
*** Portfolio Trading Update – Equity and Sector Models ***
With our models pointing to potential short-term turbulence in the equity markets and potential upside in bond prices (as discussed in Three Minutes on Markets), we increased our bond portfolio duration and equity hedge by swapping IEF for TLT. We also put extra cash to work by adding to our short-term bond position (SHY). We will redeploy SHY into stocks and or bonds when needed.
Equity and Sector Model:
Sold 6% IEF and Bought 6% TLT
Added 7% SHY
March 23, 2021
*** Portfolio Trading Update – All Models ***
With our daily “money flow” indicators very close to turning negative, with money flows negative as well, we are reducing equity risk across all models slightly.
Equity Model:
Selling 100% of MRO to reduce our overweight energy holdings.
Selling 100% of ZM reducing our exposure to communications and a sector laggard.
Initiating a 1% position in PG to add to our Consumer Staples (defensive) holdings.
Fear / Greed Gauge Remains Very Elevated Despite Recent Volatility
Technical Gauge Remains Overbought Currently
Risk/Ranges Suggest Market Still Not A Good Buy
March 18, 2021
*** Portfolio Trade Update – Dynamic Model ***
Portfolio Managers: Nick Lane/Lance Roberts
We are selling our entire stake of TSLA this morning. We bought it previously at support which failed. The recent rally ran back into our previous support and failed again. We simply had bad timing on this trade. We are closely evaluating all of our positions now and continue to raise cash.
Sell 100% of TSLA
March 16, 2021
*** Portfolio Trade Update – Equity, Sector and Dynamic Model ***
Portfolio Managers: Michael Lebowitz/Lance Roberts
After a nice run-up in the banks/financials, we are taking some profits.
Equity model- reduce GS and JPM from 2% to 1.5%
Sector model- reduce XLF from 4% to 3%
Dynamic model- reduce JPM from 3.5% to 2.5%
*** Portfolio Trade Update – Dynamic Model ***
Portfolio Managers: Nick Lane/Lance Roberts
We are initiating a 3% position in Tapestry (TPR) which is a high-end retailer of luxury goods. With stimulus checks coming in and the economy reopening there is potential upside for TPR.
Initiate a 3% position of TPR with a stop-loss at $40.
With our short-term money flow indicator turning positive yesterday we are adding exposure to all of our portfolios. Primarily, we are just bringing positions that recently sold-off back up to model weights but we are increasing sizing in APPL and MSFT to 3.5% of the portfolio and bringing ABT, ABBV, JNJ and CVS up to 2% each after reducing those positions previously. In the Dynamic Model which is very technology-heavy, we are adding a bit of industrial and healthcare exposure as well to broaden out the allocation model.
Equity Model
Increase allocation to AAPL and MSFT to 3.5% of the portfolio.
Bring NFLX and ZM up to 2% of the portfolio.
Add 0.5% weight to ABBV, ABT, JNJ, and CVS increasing total exposure to 2% each.
ETF Model
Increase XLV to 8% of the portfolio.
Increase XLK to 12.5% of the portfolio.
Dynamic Model(Still in beta testing)
Reduce BGSF from 5% to 3% of the portfolio.
Initiate a 3% position in JNJ, CSV, and BRK.B each in the portfolio.
March 9, 2021
We recently added NextEra Energy (NEE) to our equity model to increase exposure to utilities and the burgeoning green energy business. NEE is not only the nation’s largest utility company but is heavily investing in green initiatives. We ran across the following Bloomberg article which discusses their latest purchase of Mainspring Energy. Mainspring has invented a non-combustible linear generator that can run on natural gas, bio-gas, or hydrogen.
March 8, 2021
*** Portfolio Trade Update ***
We are using the early morning rally to rebalance portfolios once again as the “energy” trade has gotten way ahead of itself. We also got stopped out of two positions in the Dynamic Model which we are raising some cash to add back into current holdings on the upcoming money flow buy signal.
Equity Model
Reducing all energy holdings back to the model weight of 1% each. – MRO, KMI, XOM, FANG
ETF Model
Reduce XLE back to portfolio model weight of 3% – taking profits.
Reduce XLC back to portfolio model weight of 5% – taking profits.
Dynamic Model
Stopped out of SNOW – sold 100% of the position
Stopped out of ZS – sold 100% of the position.
March 8, 2021
Market Update – Is The Selling Over Yet?
As we have discussed over the last couple of weeks, the weekly money flow sell signals have continued to suggest downward pressures on prices. This past week, the total momentum/green energy trade was taken out behind the “woodshed” and thoroughly beaten. The Dynamic Model, which is a high beta, momentum, allocation (which is still in the testing phase),felt the rotation’s brunt as would be expected.
The question now is whether the selling is over, or is there more to come. For that answer, we need to look at both the daily and weekly charts for the S&P 500 and Nasdaq.
Daily Indicators Getting Extremely Oversold
On a short-term basis, the S&P held important support through last week at the 50-dma. While the correction on the surface looks relatively mild, the turmoil below the surface was somewhat extreme. The previous “go-go” names have experienced a pretty severe bear market decline, while “inflation trades” have been in a “raging bull” market. I don’t recall seeing a market rotation this vicious previously.
As shown below, the “money flow” index (middle panel) is now back to more extreme oversold conditions suggesting a reflexive rally is likely this week. As we will discuss momentarily, we still recommend using this rally to execute portfolio rebalancing actions:
Trim Winning Positions back to their original portfolio weightings. (ie. Take profits)
Sell Those Positions That Aren’t Working. If they don’t rally with the market during a bounce, they will decline more when the market sells off again.
Move Trailing Stop Losses Up to new levels.
Review Your Portfolio Allocation Relative To Your Risk Tolerance. If you have an aggressive allocation to equities at this point of the market cycle, you may want to try and recall how you felt during 2008. Raise cash levels and increase fixed income accordingly to reduce relative market exposure.”
The Nasdaq 100 is even more extremely oversold and holding critical support. We will likely see a counter-trend rally this week in some of the previous “mo-mo” names. As with the S&P 500, we will be using that rally to clean up laggards and add to winners.
Weekly Indicators Suggest We Still May Have Another Round Of Selling
On a longer-term basis, the money-flow indicators on both the S&P 500 and Nasdaq have more room to go before signaling an all-clear. Such is why we are suggesting using a counter-trend rally to lighten exposures and rebalance risk. While money flows have been positive, they are deteriorating rather quickly.
However, it is essential to note that larger market declines generally align with negative money flows, and “consolidations” occur during positive flows.
As shown, the money flows on the S&P remain positive, but are weakening, suggesting more volatility in the short-term as “selling pressure” remains.
The Nasdaq is a little more worrisome at this juncture. The weekly sell signals are entrenched but have not reversed as much as the S&P at this point. Furthermore, the money flows are very close to going negative, so a short-term rally is needed to keep that from happening.
Again, as noted above, this all suggests using rallies to rebalance risk short-term.
The Dollar Rally
As we discussed over the last couple of months, the one thing we were worried about that could disrupt the “reopening” rally was a reversal in the “weak dollar.” More robust employment, economic growth, and inflation pressures are all “fuel” for a stronger dollar. That rally occurred.
The dollar is very overbought short-term. A reversal would provide some support for a counter-trend rally in equities and bonds.
Again, if the economy will improve, particularly with more stimulus, then the dollar rally is likely not complete yet, which supports the idea of “selling into strength.”
As we will discuss on Monday in the market update, the markets are decently oversold on a money flow basis suggesting a short-term rally is likely. We will be using that rally to rebalance holdings.
However, we did use today’s early sell-off to continue building into recent portfolio additions of ALB and LIT.
Equity Model
Add 1% to ALB increasing portfolio exposure to 3%.
ETF Model
Add 1% to LIT increasing portfolio exposure to 3%.
March 1, 2021
*** Portfolio Trading Update – All Models ***
We are “greening up” our portfolios a bit today by adding some positions in a NEE (Nextera Energy) and LIT(Lithium & Battery Tech.) After a decent pullback to support last week that held, we are able to add a little “momentum” to the portfolio for the time being.
Equity Model
Initiate a 2% position in NEE
ETF Model
Reduce XLB from 3% to 2% in the portfolio
Initiate a 2% position in LIT
Dynamic Model
Initiate a 3% position in NEE
Market Update
We have warned for a while a correction was likely as interest rates and inflation were showing increases. That correction came with a vengeance last week. The question is where do we go from here and why some troubling chart patterns are starting to develop.
S&P 500 Index
The good news is that the S&P 500 held its 50-dma during its recent selloff. With the market getting back to more oversold levels, we are likely to see a counter-trend rally for a few days that could get us back above the 20-dma. It will be necessary for the rally to set new highs to negate the “head and shoulders” pattern. If the market rallies, fails and breaks the neckline, we could well see a deeper correction ensue.
Nasdaq Index
The “head and shoulder” pattern is defined better in the Nasdaq. Currently, the neckline support needs to hold, or we will see a more significant correction in the technology sector. With the index more oversold than the S&P 500, I suspect we will see a rally shortly in these stocks, which we will use as a “selling” opportunity to reduce exposure.
Emerging Markets
Like the Nasdaq, we see a very well-defined “head and shoulders” pattern developing here as well. Like the Nasdaq, Emerging Markets are very oversold at current levels, so a counter-trend bounce is likely. A failure at the 20-dma is likely an excellent point to reduce exposure to these cyclical sensitive areas. If economic growth weakens in the U.S., we could see a much deeper correction in Emerging Markets. Watch for a break of the neckline as a “stop-loss” for now.
International Markets
Industrialized International Markets look much the same as the S&P 500. Watch the rising neckline as a trailing “stop-loss” and a failed rally as an opportunity to reduce risk to international markets. International and emerging markets are well ahead of any expected growth in the U.S. economy, so the risk of disappointment is high.
Interest Rates Are The Key
Of course, the key to the entire market complex (including small and mid-cap markets) is interest rates and inflation. With inflationary pressures rising, input costs will have to be passed along to cash-strapped consumers or absorbed by companies with already razor-thin margins in many cases. The outcome is not good in either case. Furthermore, the spike in rates, as shown below, which corresponds with higher inflationary pressures, quickly reaches the point that something tends to break in a debt-laden economy.
Pay attention to the risks.
We will use rallies to further reduce exposure to equities in portfolios until we get better clarity and improvement in our money-flow indicators.
Just as we did with the energy sector earlier this week, the financial stocks have now gotten extremely overbought. We are taking profits in these holdings and reducing positions back to original sizing.
Equity Model:
Reduce GS and JPM back to 2% of the portfolio each.
With interest rates spiking, we are worried about the impact of higher rates on not only the economy but valuations as well.
Equity Model:
Selling 100% of LOW
ETF Model
Reducing XLK by 2% of the portfolio from 13% to 11%.
February 24, 2021
*** Portfolio Transaction Alert – Rebalancing Energy Holdings ***
After a rather significant runup in energy stocks since the beginning of the year, we are rebalancing our positions back to portfolio weightings. We are already overweight energy stocks relative to our benchmark index, so we are just reducing our holding back to their original weightings.
Equity Model:
Reducing MRO and XOM back to 1% of the portfolio each.
ETF Model
Reducing XLE back to 3% of the portfolio.
Dynamic Model
Reducing MRO to 2% and XOM to 3% of the portfolio.
February 22, 2021
Market Review & Update
Over the last two weeks, the market has made minimal advances while underlying measures show deterioration in its technical strength. However, as we have noted in our 3-minute videos, the money flow buy signals have remained intact, providing support for prices in the near term.
Importantly, base money flows continue to be exceedingly strong, which suggests that even though we are currently on a short-term “sell signal,” it is quite likely the market will continue to hold support around current levels. As shown in the chart below, previous periods where money flows have been positive during a “sell signal,” markets have most consolidated and set up for another advance.
Given we are in the seasonally strong period of the year, we suspect this will likely be the case this time as well.
Emerging and International markets continue to have powerful money flows as investors chase these areas. These indices are grossly extended, and valuations no longer justify ownership. However, for now, the bias is to the upside. As long as money flows remain positive, you can add exposure on dips that don’t violate the running moving averages. However, eventually, the reversion to the mean will be much larger than most expect. Keep stops close to your entry levels.
The Russell 2000 index, where most “zombie companies” survive, remains grossly deviated from long-term means. Eventually, this deviation will matter. For now, however, money continues to chase these smaller companies hoping for “big gains.” The evidence of ongoing speculation is clear. However, for the moment, the bullish bias remains strong along with money flows. It is okay to trade the index but keep stops tight for now.
Bonds continue to remain under pressure as rates rise in anticipation of more stimulus and higher inflation levels. As discussed in this past weekend’s newsletter, it is only a function of time until rates collide with an overbought and overvalued market.
Most likely, somewhere between 1.5% and 2.0%, the economy will start to show a negative impact on consumption, and the Fed will start talking about “yield curve control.”
The other problem with higher rates is that the bullish support of “low rates justifies high valuations” quickly reverses.
While there is nothing to worry about immediately, it is likely not a bad time to start “hedging” your portfolio a bit by raising some cash and rebalancing risk.
When the correction comes sometime over the next month or two, it will likely be a swift one.
Fear/Greed Gauge Fell Only Slightly To 91.8 (Extreme Greed)
Technical Gauge Is Still At Extreme Overbought
February 19, 2021
** Dynamic Portfolio – Trade Update ***
Portfolio Managers – Nick Lane/Lance Roberts
We are adding two trading positions to our portfolio this morning. These are strictly short-term trades based on oversold conditions. We are maintaining tight stops just in case things don’t turn out as planned.
Equity/Sector Portfolio
Buy 3% of the portfolio in TSLA / Stop-loss is set at $700
Add 1.5% to MSTR / Stop-loss remains at $800
February 18, 2021
** Equity Portfolio – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
We sold all of our position in WMT today following not only a disappointing earnings announcement but also very lackluster guidance for the rest of the year. We will re-evaluate the position in the future if warranted.
Equity/Sector Portfolio
Sell 100% Of Walmart (WMT)
** Dynamic Portfolio – Trade Update ***
Portfolio Managers – Nick Lane/Lance Roberts
We sold our position in AMD. This is a first step in reducing our equity exposure as we are seeing signs a correction is on the horizon. AMD appears technically vulnerable as well. We are adding back to our stake in PLTR after taking profits previously. The recent correction has gotten the position back to support and extremely oversold.
Equity/Sector Portfolio
Sell 100% of AMD
Add 2% to PLTR bringing total weighting to 4%.
February 17, 2021
** Equity Portfolio – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
We sold our position in AMD. This is a first step in reducing our equity exposure as we are seeing signs a correction is on the horizon. AMD appears technically vulnerable as well.
Equity/Sector Portfolio
Sell all AMD 31 shares 2.5%
February 16, 2021
** Equity and Sector Portfolio – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
We reduced our fixed income exposure by selling our entire position in MBB (mortgage ETF) and buying, in its place, 10% of SHY (1-3yr Tsy). We are concerned that further selling in the fixed income markets would raise the duration of mortgages and create forced selling by leveraged institutional holders of mortgages. Given the low yield of mortgages, the risk-reward is not worth the risk.
Equity/Sector Portfolio
Sell all MBB 13%
Buy 10% SHY
Market Commentary
This past week was mostly non-eventful, with markets absorbing some of the previous week’s runup. In the short-term, the markets are indeed overbought, with almost every market pushing 2-standard deviations of the 50-dma. Such would suggest that upside is limited in the short-term, but money flows are currently favorable, supporting stock prices in the short-term.
We will review the money-flow analysis for each of the major markets.
In all graphs below, the primary indicator to observe is the middle panel. This is our money flow indicator, which combines both price and volume to determine the strength or weakness of advance or decline.
S&P 500
As noted, we had previously reduced our exposure to markets in mid-January as the money flow indicator was getting extremely extended. That worked out well given the sharp decline at the end of January. Following that decline, we began adding positions back to portfolios and are once again nearly fully allocated to equity risk.
At the moment, money flows are positive, and the market has been consolidating the recent gains. However, money flows are weaker than they were previously, and when the market turns down, we are likely going to see a bit bigger correction than we saw in January.
The money flow index is currently not back to its warning zone just yet, so we are still one to two weeks away from the next correction phase.
Mid-Cap 400
As with the S&P 500, Mid-caps are significantly extended and deviated above long-term means. When it comes, the correction will likely be reasonably substantial, given the current deviation. Profit-taking would be advisable currently.
The money-flow index is positive, but flows are weakening, so when a correction begins, it will be worth paying attention to. At the moment, there is no need for real concern, we are likely a couple of weeks away from a correction, but as stated, a little profit-taking is advised.
Small-Cap 600
As with the Mid-Cap 400 index, the same goes for the small-cap index. Small-caps are grossly extended, overbought, and deviated from long-term means. It is highly advisable to take profits and reduce exposure to this sector after the recent run.
Again, we are most likely a week or two away from a correction. While you can continue to hold positions for now, just be aware of the risk. When the market turns, it will be swift, and you likely will not have much opportunity to sell. Such is why some advance profit-taking is probably advisable.
Emerging Markets
Emerging Markets, like small caps, are grossly extended. As with the recent correction, the next will likely be just as “fast and furious.”
Again, we are likely a week or two away from a correction as money flows are positive. However, they are weakening, which suggests profit-taking is advisable.
International Markets
So goes Emerging Markets, so goes International.
Take profits and reduce risk. The coming correction, when money flows peak and turn lower, will be relatively swift.
Gold
I have had a lot of questions about Gold lately. The belief is that with the Fed, and the Administration, pumping money into the financial markets, we are about to get a strong surge of inflation. While I will not get into the dynamics of what causes real inflation here, the simple fact is that Gold is more of a “fear” trade than an “inflation” trade.
Clearly, given the mass speculation that is going on in the market from Gamestop to Marijuana stocks, there is no fear. Such is apparent in the chart below. Technically there is no reason to own gold currently. When we begin to see the technical backdrop improve, we will undoubtedly add positions back to our portfolios.
February 13, 2021
Public Service Announcement:
How Can You Lose 50% Of Your Money? By Forgetting Tomorrow Is Valentines Day!
We added a 3% position in QRVO this morning at the open. We are continuing to build out the portfolio and looking for companies with strong earnings growth profiles that have gotten recently oversold.
Dynamic Portfolio
Buy 3% of the portfolio in QRVO / Stop-loss set at $163
February 9, 2021
** Dynamic Portfolio – Trade Update ***
Portfolio Managers – Nick Lane/Lance Roberts
We are taking profits and reducing our position in MSTR after the 30% advance yesterday. The position grew from 3% to 4.75% so we are reducing the position for now. We will add back to the holding once we get a bit of correction that works off the extreme overbought. This is essentially a play on the “bitcoin mania” so we are just going to take profits along the way.
Dynamic Portfolio
Selling 1-share of MSTR to reduce position size at the open. Original holding was 5-shares.
February 8, 2021
** ETF Portfolios – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
We are continuing to work at rebalancing the portfolio closer to the benchmark weightings. With rates pushing higher, we are reducing XLU by 4% and increasing our underweight positioning in XLK up by 4%. This adjustment is simply a swap of holdings and does not increase overall equity allocation.
As shown, the S&P index is currently overbought and trading significantly above its 200-dma. The short-term correction at the end of January did little to alleviate these conditions. However, with the Bollinger Bands narrowing, the market could trade higher over the next month.
A worrisome sign is the percentage of stocks outperforming the S&P 500 index over the last 12-months. The breadth of that outperformance has gotten extremely narrow. It is worth noting the previous dates of the lows in this indicator.
As Bob Farrell once noted:
“Markets are strongest when broad and weakest when narrow.”
Also concerning is the more extreme deviation from the 225-day moving average, somewhere between February and March, we could see a larger correction take hold. In any given year corrections of 5-10% are completely within norms. Historically, such extreme deviations have tended to align with bigger corrections.
Market Review – Weekly Chart
For investors, the outlook becomes much more troubling as we look further out.
The market is trading well into 3-standard deviation territory above its long-term mean. Furthermore, while the market is incredibly overbought on a weekly basis, there is a negative divergence in relative strength (RSI).
Since weekly charts are slower moving, such does not mean the markets will crash immediately. Long-term charts indicate that price volatility will likely be higher in the months ahead, and investors should monitor their risk accordingly. While momentum-driven markets can remain irrational much longer than logic would predict, eventually, a reversion has always occurred.
The chart below shows the price deviation from the one-year weekly moving average. Given the deviation is well above 15%, price corrections have historically always been nearby. (Such does not mean a market crash. A correction of 10-20% is well within norms.)
Long-Term View Is Bearish
The monthly chart of the S&P 500 is likewise just as problematic. Again, long-term charts predict long-term outcomes and are NOT SUITABLE for trading portfolios short-term.
As shown, the deviation from long-term monthly means and negative divergences in relative strength has previously been warning signs for more significant corrections.
We see the same problematic setup when viewing the market’s current deviation from its 2-year monthly moving average. The current deviation has only occurred 5-times since 1960 and has always led to a correction over the next several months. (Some worse than others.)
However, since 1900, using QUARTERLY analysis, the picture is bearish for returns over the next decade. The research below aligns valuation, relative strength, and deviations into one chart.
There is little to suggest investors who are currently extremely “long equity risk” in portfolios now won’t eventually suffer a more severe “mean-reverting event.”
While valuations and long-term deviations suggest problems for the markets ahead, such can remain the case for quite some time. It is this long lead time that always leads investors to believe “this time is different.”
Because of the time required for long-term data to revert, monthly and quarterly data is more useful as a guide to managing expectations, allocations, and long-term exposures. In other words, this data is not as valuable as a short-term market-timing tool.
What Could Cause A Correction In 2021?
Lots of things.
The market is currently priced for perfection betting on explosive economic growth, a falling dollar, interest rates remaining low, consumer spending surging sharply, and inflation remaining muted. The reality is that none of those things will likely turn out to be the case.
The one thing that always trips of the market is the one thing that no one is paying attention to. For me, that risk lies with the US Dollar. As noted previously, everyone expects the dollar to continue to decline, and the falling dollar has been the tailwind for the emerging market, commodity, and equity “risk-on” trade. Whatever causes the dollar to reverse will likely bring the equity market down with it.
That is the risk we are paying attention to right now.
RISK IS ELEVATED – look for profit taking next week.
February 5, 2021
*** Equity / ETF Portfolios – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
As noted in the trading update below, we also added ALB to the equity portfolio. Given that we already have 5% of industrial exposure in the equity model, we also added 1% to XLI and 1% to XLB to keep our allocations in line.
“Albermarle is the world’s largest producer of lithium so it plays into Biden’s green theme. The stock is down almost 20% from early January highs and back to the 50-day moving average which is what we were targeting. Money flows are also turning positive. ” – Michael Lebowitz, CFA
Equity Portfolio
Initiate a 2% position in ALB / Stop-loss set at $146
ETF Portfolio
Add 1% to XLI bringing total portfolio weight to 2%
Add 1% to XLB bringing total portfolio weight to 3%
*** Dynamic Portfolio – Trade Update ***
Portfolio Managers – Nick Lane/Lance Roberts
After decent consolidations, we are adding two stocks this morning on expectations of “better than expected” earnings coming on the 17th. ALB is the worlds leading producer of lithium for batteries, and ZS is a software infrastructure technology play.
Dynamic Portfolio
Initiate a 3% position in ZS / Stop-loss set at $193
Initiate a 3% position in ALB / Stop-loss set at $146
February 4, 2021
*** Equity & ETF Portfolio – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
We are continuing to rebalance our portfolio to more closely align with our benchmark follow the correction last week. After adding JPM to portfolios to capture the impact of a flatter yield curve, and more liquidity from stimulus, we added GS to portfolios today. We were also considering adding a position in short-duration high yield bonds, but after comparing performance and volatility over the last couple of years, we opted for increasing our exposure to Preferred stocks instead which have less risk of default.
Equity Portfolio
Initiate a 2% position in GS / Stop-loss set at $270
Increase PFF from 5% to 10% of portfolio / Stop-loss remains at $37.50
ETF Portfolio
Increase XLF from 2% to 4% of portfolio / Stop-loss set at $29
Increase PFF from 5% to 10% of portfolio / Stop-loss remains at $37.50
February 3, 2021
*** Equity Portfolio – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
We sold 100% of KHC this morning as input costs are rising and they are unable to pass those along to the consumer. Such will press margins in the future. We are going to remain slightly underweight staples in our models for now.
Sell 100% KHC
February 2, 2021
*** Equity and ETF Portfolios – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
As noted with the trades in the Dynamic Model earlier this morning. We have now executed the same trades in the Equity and ETF Portfolios.
Equity Model:
Initiate a 1% position in XOM / Stop-loss set at $42.00
Initiate a 1% position in MRO / Stop-loss set at $7.00
Initiate a 2% position in JPM / Stop-loss set at $128.00
Sell 100% of TLT – removing portfolio hedge.
ETF Model:
Add 1% to existing XLE position increasing position to 3%
Initiate a 2% position in XLF
Sell 100% of TLT – removing portfolio hedge.
*** Dynamic Portfolio – Trade Update ***
Portfolio Managers – Nick Lane/Lance Roberts
After the sell-off at the end of January, some areas of the market got hit harder than others. We are using the price weakness to add to our energy positions and increase our exposure to financials.
Increase XOM back to 3% of the portfolio (after the previous profit-taking) / Stop-loss set at $42.00
Increase MRO to 2% of the portfolio up from 1% originally. / Stop-loss set at $7.00
Initiate new 3% position in JPM / Stop-loss set at $128.00
Sell 100% of TLT – removing portfolio hedge.
February 1, 2021
*** Equity Portfolio – Trade Update ***
Portfolio Managers – Michael Lebowitz/Lance Roberts
Like JNJ, ABT is getting well overbought, trading at 3 standard deviations above its 20-day ma. As shown below, after spikes higher to the 3rd Bollinger Band, ABT tends to fall back. We sold ABT from 2% down to 1.5%- we still like the company’s fundamentals and sector.
Reduce ABT from 2% to 1.5% of the portfolio
Portfolio Earnings Announcements this week:
Tuesday (February 2nd)
AMZN – After Close
GOOG – After Close
UPS – After Close
Wednesday (February 3rd)
ABBV – Before Open
Market Review And Update
Last week was, in a word, “interesting.” While the headlines were all about Gamestop (GME), this was the “unexpected, exogenous event” that triggered the market’s sell-off. Last Friday, we discussed reducing our equity exposure because our money-flow signals were sending warnings. To wit:
The sell-off last week was enough to reverse some of the overbought conditions. However, with money flows still negative, we suggest moving cautiously in increasing equity exposure until those reverse.
At least for now, the good news is that the market did hold support at the 50-dma on Friday. With the market oversold, we would expect at least a short-term bounce. However, until the money flows provide a “buy signal,” I would suspect any rally to be a “sellable one,” at least for now.
The same goes for the entire “reflation” trade from emerging markets to small-caps. All of these sectors were grossly extended, and the correction was inevitable. As we head into the seasonally weak month of February, the only question is the selling over? Given that these markets are still grossly extended from long-term means, it is reasonable to suspect there could be more downside risk present.
The biggest clue to a further correction will the $USD. We have discussed previously the rather massive short-position against the dollar. Such provides the “fuel” for a counter-trend rally given the right catalyst. Given the negative correlation between the markets and the dollar, an expanded “risk-off” move from stocks could certainly spark the dollar rally, thereby feeding a more significant decline in stocks.
However, we aren’t there just yet, but we are watching closely.
In the meantime, we are preparing a list of candidates to add back to our portfolios. Specifically, we focus on areas that have had a decent correction, are oversold, and are maintaining good relative strength.
You can screen for ideas that fit these requirements using our scanning tool or by viewing the list of Strongest S&P 500 Relative Strength stocks under Active Trader.
Once we get into the trading day, we can determine where markets are likely heading next. Keep watching this space for portfolio changes as needed.
Market Fear/Greed Index (Investor Allocations To Risk) Dropped To 77.5
Click To Enlarge
Technical Guage has reduced some of the more extreme overbought.
Risk/Ranges have dropped back to levels which suggests a reflexive bounce is likely next week.
January 29, 2021
*** Dynamic Portfolio – Trade Update ***
Portfolio Managers: Nick Lane/Lance Roberts
Took profits in Palantir (PLTR) by reducing the position back to 3% of the total portfolio. PLTR had a big move since we added it. We will look for a pullback to add to the position again.
January 27, 2021
*** Equity Portfolio – Trade Update ***
Portfolio Managers: Michael Lebowitz/Lance Roberts
We reduced JNJ from 2% to 1.50% as the stock is grossly overbought. (This is our second reduction in recent weeks from 3% originally.) The graph below shows that it is well above its 200dma 3 standard deviation Bollinger band, a feat it hasn’t accomplished in at least 20 years.
Click To Enlarge
Reduce JNJ from 2% to 1.5% of portfolio.
January 26, 2021
*** Dynamic Portfolio – Trade Update ***
Portfolio Managers: Nick Lane/Lance Roberts
We are reducing our LEN position to 1.5% as the stock has become very overbought alongside US homebuilder indices. We intend to increase our holdings again, providing a pull-back provides some relief to overbought conditions.
We also added a 3% position in PG to gain some exposure to staples as we continue to build out the portfolio. PG is oversold and coming up off its 200-day moving average, providing a nice entry point.
Reduce LEN to 1.5% weight in the portfolio from 3%.
Initiate a 3% portfolio weighting in PG / Stop-loss is $128
Portfolio Managers: Michael Lebowitz/Lance Roberts
As we head into earnings season we previously added exposure to our major technology companies (i.e. AAPL, MSFT) in anticipation of a reflation “risk-off” trade. After reducing equity by 20% on Friday, we are adding 3% of that cash into three of our existing technology holdings to bring our technology weight up to our benchmark.
Add 1% to CRM
Add 1% to AMD
Add 1% to ADBE
*** Dynamic Portfolio – Trade Update ***
Portfolio Managers: Nick Lane/Lance Roberts
For the same reasons that we added technology to our Equity portfolio, we made some of the same additions to the Dynamic model.
Initiated a 3% weight in ADBE
Initiated a 3% weight in CRM
Initiated a 3% weight in AMD
Earnings Calendar for RIA Pro Portfolio Holdings:
Tuesday (January 26th)
AMD – After Close
JNJ – Before Open
MSFT – After Close
NSC – Before Open
RTX – Before Open
VZ – Before Open
Wednesday (January 27th)
AAPL – After Close
ABT – Before Open
Thursday (January 28th)
CMCSA – Before Open
V – After Close
Market Review – Why We Reduced Exposure On Friday
On Friday, we discussed reducing our trading index exposures (SPY and RSP) to raise cash and reduce risk as our money flow indicators are getting close to turning over. Such was a point we discussed in more detail on Thursday’s 3-minutes video (Subscribe to our YouTube feed for notifications)
In today’s market review, I want to dig into these two charts a little further. As shown, the money-flow indicator is very elevated (above the 90% line), which is usually where this indicator peaks and turns lower.
There is an important distinction that needs to be made. A “sell signal” does not necessarily mean the market will enter into a correction process where prices decline. Corrections can take on two forms: 1) a price decline that reverses the previous overbought conditions or b) a consolidation in price, which allows for a reversal of the overbought condition.
It doesn’t matter to us which one it is. When the overbought, overly exuberant, and deviated price structures are resolved to some degree, we will add exposure to our portfolios. In the short-term, history suggests the risks outweigh the reward currently.
In the very short-term, we are not heavily focused on the daily swings in the money-flow indicator. However, they become much more relevant when they align with a weekly change in the indicator from buy to sell. While the weekly signal suggests we still have some room to the upside, there isn’t likely much. Any unexpected, exogenous event could start a reasonably sharp correction in prices.
For now, we are opting to reduce our risk exposure.
As stated, we are likely early and will suffer some relative underperformance in the short-term. However, when the market turns, we will likely make up that differential fairly quickly. Such will also allow us to add to our current positions at better prices.
There are two other areas to keep a close eye on Bonds and Gold.
The money flows into bonds and gold have been accumulating despite prices not doing much. However, I suspect that positioning could be a precursor to a corrective pullback in the market where the flight to safety will likely manifest itself in these areas.
We have taken a small position early in TLT but will get more aggressive in these areas once we see the rotation.
For now, we are remaining vigilant and allowing our remaining equity exposure to continue working for us.
Portfolio Managers: Michael Lebowitz/Lance Roberts
This morning’s sell-off has now triggered our money flow indicator requiring us to take our two index trading positions off of the table. We are also selling CVX in response to Biden’s executive order to ban drilling on Federal lands and in offshore waters. We are holding our other drillers which should benefit from the eventually reduced supply caused by this order resulting in higher oil prices.
We are reducing risk now heading into February which tends to be a weaker month historically particularly following positive January months.
Sell 100% RSP
Sell 100% SPY
Sell 100% CVX
January 21, 2021
*** Equity Portfolio – Trade Update ***
Portfolio Managers: Michael Lebowitz/Lance Roberts
We sold the entirety of our position in UNH this morning. While we like the company very much it really came down to the fact that we were overweight healthcare, relative to the equal weight S&P 500 benchmark, and needed to reduce our weighting slightly. We have healthcare exposure to Aetna through CVS and with the Biden Administration potentially focusing on boosting the Affordable Care Act again, we are opting to reduce exposure to companies that may have the most impact.
We are maintaining our holdings in JNJ (which will increase to 3% of the portfolio on a pullback), ABBV, ABT and CVS.
Sell 100% of UNH (United Healthcare)
January 20, 2021
*** Dynamic Equity Portfolio – Trade Update ***
Portfolio Managers: Nick Lane/Lance Roberts
This morning we took profits in our energy holdings which are extremely overbought and added GOOG in advance of earnings. We are still building out the portfolio and have several other positions on our radar but we need a short-term market correction to trigger buy points.
Reduce XOM from 3% to 1.5%
Reduce KMI from 3% to 1.5%
Initiate a new position in GOOG at 3% of portfolio / Stop-loss is $1750
January 19, 2021
*** Equity & ETF Portfolio – Trade Update ***
Portfolio Managers: Michael Lebowitz/Lance Roberts
We are slowly making changes to the portfolio allocation model to move it closer to the benchmark weightings. Given we were underweight technology and discretionary, and overweight communications, we are modifying holdings to correct those imbalances.
Sell 100% of CMCSA (Comcast) – Communications
Buy 2% of portfolio value in LOW (Lowe’s) – Discretionary / Stop-loss is $160
Add 1% of portfolio value to AAPL (Apple) increasing weight to 3% / Stop-loss is $120
Add 1% of portfolio value to MSFT (Microsoft) increasing weight to 3% / Stop-loss is $210
Add 1.5% of portfolio value to AMZN (Amazon) increasing weight to 3% / Stop-loss is $3000
Portfolio Earnings Alert for the week.
Tuesday (January 19th)
NFLX – After Close
Wednesday (January 20th)
KMI – After Close
UNH – Before Open
Thursday (January 21st)
UNP – Before Open
Market Update
The market perspective didn’t change much last week as all major markets remain overbought, extended, deviated, and extremely bullish. That is good news for traders in the short-term as prices will try to extend higher. However, we are getting very close to the point of getting a reasonable correction of 5-10% within the next 4-weeks.
As shown, the S&P 500 struggled a bit this past week as the overbought condition was reduced very slightly. The TRIX indicator is close to turning down, but money flows remain positive at the moment. We will push more into “risk-off” mode if we see both the TRIX and money flow turn negative.
Elsewhere, every other market is pushing much more extreme levels, suggesting that investors’ risk/reward setup is not great. (Short-term traders still have an upward bias) For longer-term investors, now is the time to rebalance risk and reduce exposure.
Emerging and International Markets remain grossly extended and deviated from long-term means. While the price runup has been based on expectations of a global economic recovery, such is unlikely to come to fruition to the scale needed to support current prices. Much of the runup has been due to a weaker dollar, which, as we have been discussing over the last several weeks, is likely close to bottoming, at least in the short-term.
Small and Mid-Cap Markets, very much like International and Emerging markets, Small and Mid-caps are also extremely overpriced, deviated, and extended. As noted above, these markets are more extremely overbought than at any other period in the last decade. Furthermore, even if the economy does recover to some degree in 2021, it has likely already been priced in and then some. The risk of disappointment is high. Continue to rebalance risk and sizing in portfolios for now.
The dollar remains the key to the whole market. The sharp decline in the dollar over the last 9-months has been the tailwind for the equity rally. With the dollar extremely oversold and a massive net short against the dollar currently, any change in sentiment could lead to a sharp counter-trend rally. Continue to watch the dollar, and bonds, for clues to a turn. If such a turn begins, reduce equity holdings and hedge with long-dollar and bond positions.
(Note: We added a position in TLT on Thursday as an early hedge for a reversal.)
Sell 100% of BBBY (Bed, Bath & Beyond). This was a technical trade for a short-squeeze that occurred. Booking the gain.
January 14, 2021
*** Equity & ETF Portfolio – Trade Update ***
Portfolio Managers: Michael Lebowitz/Lance Roberts
The market is getting egregiously overbought, and exuberant, which suggests that we will likely move into a corrective mode sooner than later. We are currently VERY underhedged at the moment and carrying greater than 60% equity exposure. With bonds extremely oversold we are adding a 5% position of TLT to portfolios for a short-term hedge. This move has less risk than trying to short the market directly at this point.
Click Chart To Enlarge
Initiate a 5% position of TLT at the open / Stop-loss is $150
*** Dynamic Portfolio – Trade Update ***
Portfolio Managers: Nick Lane/Lance Roberts
See note above on TLT.
We are also adding starter positions in both MRO (Marathon Oil) and MSTR (Microstrategy, Inc.) We are expecting both of these positions to pull back and give us an opportunity to add the second half of the position. We are also carrying tight stops on both positions. MSTR is a play on the “bitcoin” mania as the potential for another $2 Trillion in stimulus will likely exacerbate that trade. We are carrying a running trailing stop on MSTR at the 20-dma.
Buy 5% of TLT / Stop-loss is $150
Buy 1.0% of the portfolio in MRO / Stop-loss is $6.35
Buy 2.5% of the portfolio in MSTR / Stop-loss is $425.00
January 13, 2021
*** Equity Portfolio – Trade Update ***
Portfolio Managers: Michael Lebowitz/Lance Roberts
We are adding a 2% position of ZM (Zoom Video) to the portfolio. As shown in the chart below, the stock has had a large retracement, is oversold, and the short-term MACD has triggered a “buy signal.” We will add to our position if the longer-term MACD also turns positive. This is a purely technical based trade so we are carrying a fairly tight stop for now, but if the position migrates into a stronger technical position by breaking above the recent downtrend at $400, then we will consider it a longer-term hold.
(Click To Enlarge)
Buy 3% of the portfolio in ZM / Stop-loss is $330
Rebalanced FANG (Diamond Back Energy) back to original position weight 1%.
*** Dynamic Portfolio – Trade Update ***
Portfolio Managers: Nick Lane/Lance Roberts
As noted above we also bought ZM (Zoom Video) into the portfolio after a large correction back to long-term support. Given that even with a vaccine it doesn’t look like we are returning to normal any time soon, the stock price should be a setup for a decent bounce if earnings come in better than expected.
We also bought BBBY (Bed, Bath & Beyond) which is in the process of buying back 15% of their outstanding shares. Such sets the company up for a short-term “short-squeeze” as BBBY carries a large net-short positioning currently. This is a short-term trade and not an investment.
We added a position in both AMZN and NFLX which have been basing along support and have turned up. These are technical trades only with tight stops.
Buy 3% of the portfolio in ZM / Stop-loss is $330
Buy 3% of the portfolio in BBBY / Stop-loss is $18.05
Buy 3.1% of the portfolio in AMZN / Stop-loss is $3122.00
Buy 3% of the portfolio in NFLX / Stop-loss is $493
January 12, 2021
*** Equity Portfolio – Trade Update ***
Portfolio Managers: Michael Lebowitz/Lance Roberts
As we have discussed in recent missives, the Utility sector is extremely oversold. However, with rates pushing higher on expectations of more deficits, stimulus spending, and higher inflation, the “Utes” remain under pressure. While we like the sector defensively, we were stopped out of both of our positions this week:
We initiated a 5% position in BGSF. The stock is currently forming a bullish technical trading pattern with support near $12.50 per share. Additionally, the price remains roughly 34% below its level one-year-ago, leaving plenty of room for price appreciation as the economy recovers.
Buy 5% of the portfolio into BGSF. Stop-loss is set at $12.50
The following CNBC article reports on JNJ ‘s COVID vaccine that could significantly speed up the vaccination process. Unlike the Moderna and Pfizer vaccines, theirs requires only one shot and can be stored in a traditional refrigerator, not in specialized refrigeration systems at sub-zero temperatures.
We own 2% of JNJ in the equity model.
So Goes The First 5-Days Of January
** Click Charts To Enlarge **
For the week, the market churned out a 1.97% rate of return. As the old Wall Street axiom goes “So goes the first 5-days of the year, so goes the month. So goes the month, so goes the year.”
While you may be tempted to just “shut off the lights” and come back next January, while the year may indeed turn out positive, it likely won’t do so without some significant volatility along the way.
We got a few questions like week why we were adding broad index position weightings to our portfolios. As shown in the chart below, while the market is overbought short-term, the money flows, and the MACD is turning positive. With the market close to the top of its Bollinger Bands, upside may be more limited, but the setup is similar to what we saw in July which could give us a month or two of upside before we get a much-needed correction.
The current exuberance in the markets is extreme particularly in the small/mid and international/emerging market space. As shown below, IWM and EEM are trading at extremes and when a correction comes it will likely have a large impact on these two areas.
The one thing that derails this particular train is a reversal in the U.S. Dollar. We have opined on it previously, but continue to watch the dollar closely as money flows have turned positive and a buy signal has now been triggered.
It is still very early, and we have seen failed rally attempts previously over the last year. However, the negative sentiment, along with the net short positioning, is now at extremes. Such has usually been an ideal setup for a counter-trend rally.
Current Positions
We recommend currently holding your positions for now. But keep an eye on some of the more extreme levels of markets. We are now at a point where reversals happen, and they happen for the most unexpected reasons. With the current technical backdrop of the markets positive, I suspect that markets will continue to rise through January. However, sometime between February and early April, we suspect there will be a decent corrective action we can buy into.
Keep stops tight and maintain your risk controls for now.
Market Fear Greed Gauge at 97.50 / 100 for the week ending 1/8/21
Technical Gauge at 91.07 for the week ending 1/8/21
January 8, 2021
*** EQUITY / ETF MODEL ***
Portfolio Manager: Michael Lebowitz/Lance Roberts
This morning we added 5% of SPY and 2% PFF, we sold all of IAU and GDX as they are breaking below support this morning. Given that GDX and IAU were in the equity portfolio our equity exposure is largely unchanged.
Sell 100% of GDX from portfolios.
Sell 100% of IAU from portfolios.
Buy 5% of portfolio value in SPY
Buy 2% of portfolio value in PFF
*** Dynamic Equity Portfolio Model Update ***
NOTE: There is a pricing error on SNOW. We are aware of it and are fixing it.
Portfolio Manager: Nick Lane/Lance Roberts
We initiated 3% positions in each of the following to start building out the “new economy” side of the portfolio.
SNOW – Entry $314.9 / Stop Loss $260
PLTR – Entry 25.92 / Stop Loss $22.50
SQ – Entry 242.97 / Stop Loss $215
PINS – Entry $72.96 / Stop Loss $65
ETSY – Entry $177.00 / Stop Loss $166
AAPL – Entry $131.20 / Stop Loss $126
MSFT – Entry $219.14 / Stop Loss $210
January 7, 2021
*** Dynamic Equity Portfolio Model Update ***
Portfolio Manager: Nick Lane
We initiated 2.5% positions in each of Kinder Morgan and Exxon Mobil in order to gain exposure to the reflation trade. Both stocks are also setting up a nice technical picture.
KMI – KMI just triggered a money-flow buy signal. Additionally, the stock recently held support at the 50-dma and is setting up to form a “golden cross”, a bullish signal where the 50-dma crosses above the 200-dma. The close proximity of these moving averages also provides strong support for the stock near the $13.75 range.
XOM – Similarly to KMI, XOM recently triggered a money-flow buy signal. The stock is also setting up for a “golden cross”, so long as the current trend continues. The close proximity of these moving averages provides fairly strong support near $40 per share.
January 6, 2021
*** Portfolio Model Update ***
We are rebalancing the equity model. We reduced the following stocks below (tech, communication, and healthcare) and added 5% of RSP as a placeholder for now.
While this is a net reduction of equity exposure, it is only temporary as we look for short-term corrections to add to current holdings or add new holdings.
Currently, the equity model has 64% equity and the sector model has 66%. Both figures include gold and gold miners.
This morning we opened up a new trading account and have launched a new equity portfolio managed by Nick Lane with RIA Advisors. The portfolio has no boundaries or set allocation structure and can invest in any asset class, ETF, equity, or mutual fund seen as an opportunity.
NOTE: This is an aggressive portfolio model and will trade as needed. Therefore, it is not recommended for those seeking lower volatility, safer returns over time, and income.
This morning we initiated two new 3% positions in both Lennar (LEN) and Microchip Technology (MCHP).
LEN – We like the stock based on favorable fundamentals and a technically oversold level that may begin to reverse soon. We expect an extended period of accommodative economic policy and housing shortages to bode well for the stock heading into the spring and summer of 2021. LEN’s status as the largest homebuilder in the nation (measured by revenues) should help it stave off increases in input prices over this period as compared to industry peers.
MCHP– We initiated a position in the stock based on favorable future growth prospects in the industry as well an improving picture based on technical analysis.
A Technical Review Of The S&P 500
Welcome to 2021. As we kick off a new year, it is important to have some perspective in order to set reasonable expectations for returns. Currently, Wall Street analysts are wildly exuberant on expectations of explosive economic growth, rising interest rates, and inflation. The problem with those expectations is that in an economy that is $85 Trillion in debt, higher rates and inflation are a “death knell” to economic growth.
Yes, while the Fed may come to the rescue with more QE, with markets already trading at 36x times earnings it is becoming much more difficult to justify continuing to overpay for earnings. Eventually, corporate earnings are going to have to markedly improve, or prices will revert.
In the short-term, the S&P is currently overbought and trading significantly above its 200-dma. With the Bollinger bands narrowing the next move of the market will likely be either sharply higher or lower.
We currently expect the bullish trade to continue into January. However, somewhere between February and March, we could see a correction take hold. Much the same as we saw in Q1 of both 2018 and 2019.
Where it becomes much more troubling is when we look at the markets from a longer-term perspective.
On a weekly basis, the market is trading 3-standard deviations above its long-term mean and is incredibly overbought. At the same time, there is a negative divergence in relative strength (RSI) which is cause for concern. However, since weekly charts are longer-term, such does not mean the markets will crash immediately. Momentum driven markets can remain irrational much longer than logic would predict.
The monthly chart of the S&P 500 is likewise just as worrisome. Again, long-term charts predict long-term outcomes and are NOT SUITABLE for trading portfolios short-term. As shown the deviation from long-term monthly means and negative divergences in relative strength have previously been warning signs for more significant corrections.
What could cause a correction in 2021?
Lots of things. The market is currently priced for perfection betting on explosive economic growth, a falling dollar, interest rates remaining low, consumer spending surging sharply, and inflation remaining muted. The reality is that none of those things will likely turn out to be the case.
The one thing that always trips of the market is the one thing that no one is paying attention to. For me, that risk lies with the US Dollar. As noted previously, everyone expects the dollar to continue to decline, and the falling dollar has been the tailwind for the emerging market, commodity, and equity-risk trade. Whatever causes the dollar to reverse, will likely bring the equity market down with it.
That is the risk we are paying attention to right now.
“Maybe this time is different. Those words, supposedly the most dangerous to utter in the investing realm, came to mind amid the frenzied pops in the highly anticipated IPO’s. We discuss why the current market mania reminds us of the “Shades of 1999.”
“A recent article from Institutional investor decode ‘fund manager speak’ when you see them on financial media. Here are the 10-Investing Rules to improve you investing and avoid the noise.”
December 28, 2020
2020 will go down in the record books for a year when “anything that could happen, happens.”
It is also a year that led to many frustrations for portfolio management as the level of “risk-taking” by market participants derailed both technical and fundamental metrics. While this was initially driven by the Federal Reserve’s massive monetary liquidity programs, it was exacerbated by sports gamblers turning to the stock market to “get their fix.”
Is this going to end badly? Definitely.
When? We don’t have a clue.
Markets can, and do, remain irrational longer than logic (or fundamentals or technicals) would predict.
As such, we are making a change to our portfolio models to allow us more flexibility to participate in market trends while still employing a level of risk management.
Importantly, this change is driven by three primary factors:
Bonds, at below 1% yields, no longer offer the “hedging” ability they previously did. Over the last several years, a significant portion of our returns came from our bond portfolio. Going forward that is no longer a possibility.
Hedging provides a drag on a portfolio’s performance. While this is what it is supposed to do, with bonds also likely to underperform, hedging is becoming more challenging.
The exposure we have to equity risk needs to perform with the market when the market advances.
Currently, our portfolio models are 60% equities and 40% fixed income.
However, in the equity “sleeve,” we have positions that are more non-equity and provide some form of risk control. These can range from preferred issues to gold, gold miners, short-market positions, etc.
In order to reduce the potential future drag of the bond holdings, along with our non-equity risk management positions, we are adjusting our portfolio as follows going into 2021.
As such, the new model will allow us to maintain more equity exposure as markets are advancing to increase returns while still being able to risk-adjust the total model. The “hedge” sleeve can hold anything from short-market positions to currency, gold, or any other asset we see an opportunity to create returns from.
With rates currently below 1%, we are going to become more focused on trading duration in the years ahead. When yields rise substantially, we will reduce the duration. Conversely, when yields fall we will increase duration.
2021 will likely be a challenging year to create returns in markets that are currently “priced for perfection.” In other words, there is likely far more that could wrong in 2021, than what could go right.
We will have to trade accordingly.
December 23, 2020
On Monday we initiated a position in Diamondback Energy (FANG). We were eyeing FANG for a few weeks but held off as it was technically overbought on a short term basis. Prior to Monday, the stock had fallen about 10% and its level of overboughtness was greatly alleviated. Over the weekend they purchased QEP Resources, which further weighed on FANGs stock price. We took advantage of the lower price and quite frankly a beneficial purchase for FANG. On Monday, Grants provided their thoughts on the takeover as follows:
While the AT&T c-suite works through buyer’s remorse, one shale player laments the deal that got away. Today, Diamondback Energy announced it will buy driller QEP Resources, Inc. in a $555 million, all-stock deal equal to roughly $2.22 per share, based on current trading levels. That price represents a discount to QEP’s $560 million market cap as of Friday, spurring a selloff of as much as 11% in the target company’s shares today as frustrated investors headed for the exits.
For QEP, missed opportunities color today’s transaction. Last year, minority shareholder Elliott Management Corp. bid $8.75 a share to acquire the remaining 95% of the company it did not own, valuing the equity at some $2 billion. That approach was followed by an “intense” 90 day negotiation that broke down after the parties “couldn’t come together on price,” Bloomberg reported in August of last year. After deal talks fizzled, QEP CEO Tim Cutt explained management’s rationale: “As we evaluated opportunities, it was apparent that none of the potential transactions recognize the intrinsic value of our assets.”
December 22, 2020
Sector Review
As we noted in yesterday’s “Major Market Review” (scroll down):
“No matter how you want to cut it, the markets are exceedingly overbought on every front. Extensions from long-term means are historically wide, investor confidence is exuberant, and the markets are priced for perfection as we enter into 2021. The risk of ‘disappointment’ has rarely been greater.”
The sector charts, unsurprisingly, tell much of the same story. Such is always the case when you have investors chasing assets without regard to the underlying risk. However, as John Maynard Keynes once quipped, “the market can remain irrational longer than you can remain solvent.”
I want to highlight a couple of sectors we are watching closely for a potential “risk-off” rotation in the markets after passing into the New Year.
The sector rotation table below shows the most “out of favor” sectors of the market currently. We have discussed recently, below, that if I were a “betting man,” I would be considering adding long bonds and USD trades to portfolios. (We are doing that work now to identify the correct timing.)
The rotation model also suggests that Real Estate, Utilities, and Staples (and we still like Healthcare here for demographic reasons) will lead the market during a more “risk-averse” environment.
Real Estate
There is more downside to XLRE in the short-term as eviction moratoriums continue. However, much of the risk has already gotten priced into the sector. While you can play the industry as a whole, we like REITs involved in storage, healthcare services, and communications the most. These sectors tend to be more economically agnostic.
Look at add to, XLRE between $34.50-35.50 with a stop at $33.50.
Utilities
As with Real Estate, the Utility sector is also positioning for a counter-rotation trade. Utilities have been grossly underperforming the market over the past year. Better performance returns over the next year would be of no surprise.
Buy XLU between $60-61 with a stop at $58.
Staples
Lockdowns, or a return to economic recovery, staples will continue to play a vital role as people have to eat and continue life basics. While Staples is short-term overbought, the sector has been underperforming the market since the pandemic started. A correction to reduce the overbought condition will set up Staples for a better trading opportunity into 2021.
Look for a correction between $62-64 to add to holdings. Move stops on current holdings up to $60.
Healthcare
Due to the aging demographic, healthcare will continue to generate revenue regardless of what politics try to get enacted in Washington. While Healthcare is short-term overbought, like Staples, the rather severe underperformance puts the sector in a position for better future performance.
Look to add to current holdings between $102.50-105. Move stops on existing holdings up to $100.
December 21, 2020
PORTFOLIO UPDATE – TRADE ALERT
With TSLA entering the S&P 500 index today, the rebalancing of sectors put downward pressure on energy stocks. We have been looking for a pullback in a couple of stocks to their support levels to start adding positions to the portfolios. We are using this opportunity today to start that process.
EQUITY Model
Reducing CLX from 3% to 2% (Tax loss selling)
Initiating a 1% position in KMI
Initiating a 1% position in FANG
ETF Model
Reducing CLX from 3% to 2% (Tax loss selling)
Initiating a 2% position in XLE
Major Market Update
No matter how you want to cut it, the markets are exceedingly overbought on every front. Extensions from long-term means are historically wide, investor confidence is exuberant, and the markets are priced for perfection as we enter into 2021. The risk of “disappointment” has rarely been greater.
The charts below are MONTHLY charts overlaid against a 4-YEAR moving average. These charts are NOT SUITABLE for short-term trading BUT they do provide a much better observation about some of the most extreme overbought conditions we have seen over the last couple of decades.
In each of the cases below, the deviations from long-term means suggest that an eventual mean reverting event will be costly to investors. While it does NOT mean you should sell everything and go to cash immediately, it does suggest at least planning for an eventual correction by not turning a blind eye to the risk.
“The chart below shows the combined average of institutional and individual investor valuation confidence subtracted from future returns confidence. When the reading is positive, it means the confidence the market will be higher one year from now is more elevated than the confidence in the market’s valuation. The opposite is the case when the reading is in negative territory.
The key takeaway is that investors think simultaneously, the market is over-valued but likely to keep climbing.”
“Such is the same phenomenon famously described by former Fed Chair Alan Greenspan in a December 1996 speech on “Irrational Exuberance.”
Trade carefully, there is very little room for “disappointment” in 2021.
4-Week Average Of Fear/Greed is at 94.5 out of 100.
Technical Gauge is very overbought at 88.48
December 18, 2020
Adding a bit of exposure to portfolios as some sectors and positions have consolidated recent gains and/or are starting to trigger money flow “buy signals.”
EQUITY Portfolio
Initiate a 2% position in UNP (Union Pacific) into the portfolio.
Add 1.5% to RTX (Ratheon Technologies) to bring the exposure up to 2%. (We had reduced previously to take profits)
ETF Portfolio
Add 1% to XLU to increase to 5% of the portfolio.
Add 1% to IYT to increase to 2% of the portfolio
December 17, 2020
Dominion Energy (D) recently received analyst upgrades at Credit Suisse and Bank of America. The basis for the upgrades centers around strategic actions taken in 2020 to reduce risks as well as positive guidance from Management. We currently hold a 1% position in Dominion in our Equity Portfolio.
December 15, 2020
Portfolio Update – Trade Alert
Adding 5% of SPY to Equity and ETF portfolios for the end-of-year strength. As noted in both posts below, there is a 76% win ratio for the S&P between the 15th of December and the first week of January.
There are a few setups in the market that are hard to ignore particularly when it comes to very “out of favor” trades. Two such trades are the Dollar and 10-Year Treasury Yields.
Let’s start with the dollar. The dollar is so extremely oversold, with a very large net-short position against it, that any event which causes a flight to safety is going to lead to a sharp counter-trend rotation in the dollar. While there is not a tremendous move in the dollar to the upside, the ramifications of that move would ripple through the current “reflation bets” of emerging markets, international, energy, and commodity stocks.
Of course, if money rotates into the dollar for safety, foreign governments storing their reserves in the US Dollar would buy Treasuries which has a higher yield than most bonds globally. TLT is currently sitting on very important support and extremely oversold. Like the dollar, the negativity on bonds has once again reached the point that any event which disrupts the “bullish mantra,” is going to lead to a sharp drop in rates and a rise in bond prices.
So, if I was a “betting man,” the current setup to hedge portfolios against an unexpected risk is currently very tempting. What risk could that be? As noted in this past weekend’s newsletter,it will be the one thing that no one is currently paying attention to. Such can also be seen in BofA’s list which has a “Less than 5% chance” it is none of risks on the list.
As I stated:
“What exactly will that catalyst be? No one knows, just as no one expected the ‘pandemic’ in March. Whatever the catalyst eventually is, the media’s excuse will be: ‘No one could have seen it coming.’”
However, bonds and the U.S. dollar will likely both forecast, and protect, portfolios against whatever event it turns out to be.
December 14, 2020
MAJOR MARKET REVIEW
Last week, the market began a very mild corrective process as the “bullish bias” provided enough support to offset mutual funds’ distributions. However, with the markets still overbought and money flows currently slipping, there remains some downside pressure to stock prices heading into the Christmas break. The good news is that if we get some further weakness this week, such will likely provide a decent opportunity to add exposure for a post-Christmas “Santa Claus” rally as portfolio managers allocate money for year-end “window dressing.”
S&P 500 Index
As shown, the S&P 500 is finally coming off its more extreme extension; however, there is definitely a downside risk to the 50-dma in the short-term. Whether such a correction happens before Christmas or after the New Year is unknown, but a deeper correction will occur before the next leg higher can begin.
Use weakness to add exposure for trading positions, but maintain stop-loss levels to protect capital in the near-term.
Emerging Markets & International
Both of these markets are grossly extended and overbought. A correction will likely be somewhat painful and sharp when it happens and will likely coincide with a rally in the US Dollar. (More on that in a moment).
The deviation between the current price levels on both indices and the 50-dma is extreme. With the “buy signal” extremely elevated, and markets very overbought, the downside risk outweighs the reward.
Take profits and reduce risk accordingly for now, and look for a correction to add back exposure opportunistically.
Mid And Small Caps
As with international and emerging markets, the small and mid-cap markets have been on “fire” as of late as portfolio managers play the “catch-up” trade into year-end. While the “theme” is that there will be explosive economic growth next year, such is unlikely to be the case. The market has already front-tun most, if not all, of that growth.
The risk is very elevated. Take profits and reduce risk accordingly. Look for pullbacks to add exposure opportunistically.
Dollar And Rates
The “Pin that pricks the bubble” in the commodity, energy, small- and mid-cap, international, and emerging market trade is the dollar.
The dollar is extremely depressed, the opposite of the market, and has a huge net-short positioning against it by traders. Such is the perfect combination for a very sharp reflexive bounce in the dollar. When that occurs, two things happen:
Foreign reserves shift into the dollar to protect purchasing power against rising commodity prices, and;
Those foreign inflows buy US Treasuries to store reserves pushing Treasury bond prices up and “yields” down.
Investors should consider building hedges in both the dollar and Treasury bonds to reduce portfolio risk as needed.
This potential counter-trend rally in the dollar will likely also negatively impact the energy trade, which has also gotten way ahead of itself currently.
We have been discussing that distributions heading into Christmas could weigh on asset prices short-term which is why we raised cash recently. (We were a little early.) However, if we get a further correction over the next week heading into year-end options expiration, such would set us up for the traditional “Santa Claus” rally.
We would look to add exposure opportunistically if our thesis plays out accordingly. But the risk is to the downside currently.
The basic premise is that despite the collapse in oil prices, the supply of oil available has not dropped much at all. With global demand weakening, and OPEC+ now talking about increasing production, the supply gut is likely going to continue to impact companies going forward.
As we have discussed recently the rally in energy is now way ahead of both the economic recovery and fundamentals. With such exceeding dislocations and deviations, from the underlying averages, it is likely wise to be looking to take profits in the short-term and use corrections to continue to build exposures near term.
The Rest Of The Story
The rest of the market remains extremely overbought and speculative activity is at a record. Consider using this rally to raise cash levels, and reduce portfolio risk, currently. These speculative phases can last longer than you would expect, but the correction will come quickly, and when you least expect it.
This note from SentimenTrader sums it up well.
“It’s worth noting this again. While options traders have been picking up their speculative activity since getting slapped in September, by some measures it’s back to record levels. Last week, speculative call buying-to-open among the smallest of traders, those buying 10 or fewer contracts at a time, reached a record high relative to all opening transactions.”
Again, such doesn’t mean the market will correct immediately. What it does mean is this “excess speculative attitude” provides the “fuel” for a reversion when it occurs.
Caution is advised.
December 7, 2020
2:00 pm EST
GOLD
Over the last 6 trading days, gold has had an impressive run, gaining almost 6%. It is now hitting formidable resistance in both the top of the recent channel and the 50-day moving average. If gold can break through both barriers and take out the early November highs, it may likely make a run for all-time highs. If it fails here, we will look for the 200-day moving average and then the lower channel band for support.
MAJOR MARKET REVIEW
The markets are pushing extremes rarely seen in history. The downside risk currently outweighs the reward from excessive bullishness from investors, extensions, and deviations from long-term trends.
S&P 500 Index – Take Profits
The commentary for the S&P 500 holds through all the charts below.
As shown, the S&P is now 3-standard deviations above its moving average, and more importantly, extremely deviated from its 200-dma. This is a situation that has historically not ended well for investors.
We recommend taking profits, reducing risk, and being patient for an opportunity to deploy capital. While we were a bit early in our actions, we expect to be rewarded sooner than later.
Small and Mid Cap – Take Profits
The same applies to Small and Mid-Cap exposure. While the recent rally has been based on a rebounding economy as the vaccine is distributed, there is little “value” left in the small and mid-cap trade.
As above, take profits and reduce the risk for now. The deviation from the long-term means is so great that a reversion will be quite nasty. All you need is the right catalyst, which will likely come rather unexpectedly.
Emerging Market and International – Take Profits
Again same story as above. Take profits and reduce risk. Extreme deviations from the long-term means suggest a reversion will be larger than normal. Also, whatever “value” that existed based on economic recovery has been fully priced-in and then some.
USD and Bonds – Build A Position
The biggest risk to the Small, Mid, Emerging Market, and International trade is the US Dollar.
The dollar is so deeply oversold and extended below the long-term that a reversion is exceedingly likely. The counter-trend bounce will get “fuel” from the large net-short positioning that has piled into the Dollar. If you want to hedge your portfolio, now is a good time to start building or adding to your long-dollar hedges.
Of course, if the dollar does rally, that means foreign inflows will have to go into U.S. Treasuries, which will drop rates back towards the recent lows. The run-up in rates towards 1% is approaching the “danger zone,” where it will begin to impact current economic activity and valuations.
We removed our TLT position last week as we begin to restructure our bond portfolios, BUT there is a good trade set up for TLT or EDV that we may look to take advantage of short-term.
The first week of December continued the bullish run as exuberance exploded higher in anticipation of more stimulus and a vaccine. If there was only a sign that told us that risk outweighs the current reward.
December 3, 2020
PORTFOLIO UPDATE – EQUITY PORTFOLIOS
We are increasing our holding in PSA (Public Storage) from 1% to 2% in portfolios.
After adding our position initially, PSA advanced strongly. We have been waiting for an opportunity to bring the position up to normal portfolio weight. With the pullback to the bottom of the Keltner Channel, and the MACD looking to turn positive, with the Williams %R turning up, we are adding to the position.
December 2, 2020
PORTFOLIO UPDATE – EQUITY / ETF PORTFOLIOS
As we continue to adjust our portfolio exposure, we added positions that have gotten oversold as of late and may provide a bit of hedge against a potential risk-off rotation. We are also taking profits in a couple of extremely overbought positions.
EQUITY
AMD – reduce by 0.5% from 2% to 1.5%
CMCSA – reduce by 0.5% from 2% to 1.5%
GOOG – reduce by 0.5% from 2% to 1.5% (See note below)
CRM – increase by 0.5% to 2.5% (Acquisition of Slack will be accretive to future growth)
WEC – add 1% (open new position)
D – add 1% (open new position)
(GOOG – in the RIAPRO portfolio there was NO transaction in GOOG due to the dollar size of the stock. The live account we set up for RIAPRO was $100,000 in 2019. However, for RIA Advisor Clients, whose accounts are much large in size, they own multiple shares of GOOG which allowed for a reduction in total size. While there was NO transaction in the RIAPRO portfolio, it did occur for our client portfolios.)
ETF
XLC – reduce by 1% from 6% to 5%
XLY – reduce by 1% from 5% to 4%
XLU – add 2% to increase the position to 4%.
Why XLU, D, and WEC?
We thought it would be helpful to walk you through our analysis backing the addition of XLU, D, and WEC to our models. For starters, we think the markets are overbought, exuberant, and due for a correction. We are reducing equity exposure and shifting exposure to “safer” sectors/stocks to help manage the situation. The utility sector is traditionally a lower beta, safer sector.
Second, the utility sector has been among the most oversold sector on a relative basis versus the S&P and an absolute basis. The first graph below shows that utilities are the most oversold of the sectors on an absolute basis. This came from our latest weekly Technical Value Scorecard.
So if we increase XLU in the sector model, which stocks should we buy for the equity model? To help answer the question, we use a similar analysis that breaks out the company’s Utility sector, as shown in the second graph. This table compares each utility company versus XLU as well as each company against each other company. In today’s instance, AEP, WEC, XEL, ED, and D are the most oversold versus XLU and most other utility companies. From there, we use fundamental and technical analysis to help choose between the five.
December 1, 2020
PORTFOLIO UPDATE – EQUITY / ETF PORTFOLIOS
We are making some changes to our bond portfolio as we wrap up the year to put us in a position to capitalize on our portfolio allocations next year.
Selling 100% of TLT
Reducing PFF from 5% to 3% of the portfolio
Such will drastically shorten our duration temporarily to hedge risk, but give us the flexibility to restructure the fixed income portfolio as we enter into 2021.
Yesterday, the sectors we have been warning about being egregiously overbought, extended, and deviated from long-term means, corrected. These sectors also coincide with our recent reductions in Industrials, Materials, Transportation, Financials, and Energy exposure.
These sectors are part of the “reflation trade” that took off post the election; the problem, as shown in the charts below, is that they all trading far above whatever “reflation” in the economy there will be.
CLICK on any image to enlarge.
XLB – Materials
Basic Materials started a correction process yesterday after surging well into 3-standard deviations above its longer-term averages.
Notably, Materials are significantly deviated from its 200-dma and well above the pre-pandemic highs. Such is essential considering that economic growth is substantially weaker than it was then, and materials are a function of actual economic activity.
As noted previously, take profits and reduce the risk for now. There is a decent amount of downside risk if the “bullish trade” begins to unwind.
XLE – Energy
Like Materials, Energy pushed well into 3-standard deviations territory and is well ahead of the economy’s underlying fundamentals and potential earnings growth. I have an article coming on Friday explaining why the rally in oil was premature and why we previously reduced our position in CVX.
Take profits and rebalance risks for now. Look for a pullback towards the 50-dma to start adding back to exposures.
XLF – Financials
Financials are exceptionally far ahead of the economy. Financials depend on higher interest rates for profitability. Furthermore, with the end of the year approaching, the moratoriums on housing and rent go away. There is a substantial risk to financials from a weaker economy ahead. Take profits in financials and markedly reduce the risk for now.
XLI – Industrials
Industrial, like Materials, depend on real economic activity for profitability. With industrials trading well ahead of actual economic growth, take profits and rebalance risk. Look for a pullback to start looking to add back to exposures. However, be aware of the relatively massive deviation from the 200-dma, which could quickly get filled if economic weakness shows up sooner than expected.
XTN – Transportation
Transportation also is heavily dependent on real economic activity. We have reduced our exposure to the sector and are looking for a correction back to the 50-dma to add back to holdings. Like with Industrials, the deviation from the 200-dma is rather extensive and is not outside the realm of possibility for a correction to fill. Trade accordingly.
November 30, 2020
MAJOR MARKET REVIEW
First, grab this weekend’s full commentary which discusses the more extreme nature of the market currently.
The major market review follows with some expanded commentary by Michael Lebowitz on gold.
With the November market surge, the risk of a correction is elevated with distribution season for mutual and pension funds. A look at the deviations in markets, a review of the risks, and 7-trading rules to follow.
The message this week is simple. “Time To Take Profits” and look for the next trade.As you will see in all of the charts below, the deviations from intermediate-term means are now extremes. As such, this is an excellent time to take some actions to reduce risk and hedge for short- to intermediate-term market correction.
WTIC – Oil
Over the last 3-years, whenever oil prices have become more than 3-standard deviations above the mean, a correction has ensued. Such will likely coincide with a counter-trend rally in the dollar and gold. With oil prices and energy stock prices grossly extended, this is an excellent time to take profits and reduce position sizing near-term.
EEM – Emerging Markets
Emerging Markets have had a huge run over the last couple of weeks, far ahead of any potential economic recovery. Given the dependence of emerging markets on the U.S. for activity, there is a very high likelihood of disappointment. Take profits and reduce exposure currently. Look for pullbacks to support and decent oversold conditions to add exposure to portfolios.
EFA – International Markets
So goes Emerging Markets, so goes International. Same story, just a different basket of countries. Notably, the US Dollar is critical here. So far, the markets have been unable to muster a robust counter-trend rally in the dollar, but it is coming. Take profits and reduce risks currently. Look for a deep oversold condition and correction to start adding positions into portfolios.
GLD – Gold (and by extension Gold Miners)
Conversely, Gold and Gold Miners are incredibly oversold. A correction in the markets will likely push money into gold as a hedge temporarily. With gold 3-standard deviations OVERSOLD, and the long-term sell signal at the lowest levels seen in years, gold could have a powerful counter-trend rally. We added to our gold miners (GDX) last week and will look for signs of life to add to our gold holdings (IAU). Traders can start building positions here.
“The last time gold was as oversold as it is today was in mid-March. As shown below, gold is trading slightly below its 200 dma and at RSI and MACD levels last seen in March. Making the recent sell-off more interesting is that a weak dollar and record negative-yielding debt, as we have today, have been decently correlated with increasing gold prices. However, and as we will show and discuss later today, real interest rates are rising which has a strong negative correlation to gold prices.” – Michael Lebowitz
SLYV – Small-Cap Value & MDYV – Mid-Cap Value
Small and Mid-Cap stocks (and particularly value stocks) have gone parabolic. Furthermore, this sector of the market is very dependent on strong domestic growth. Given that economic recovery shows signs of stalling, these markets are too far ahead of what will come to pass.
Take profits, reduce holdings, and look for deep correction and oversold conditions to add positions back to portfolios.
With the November market surge, the risk of a correction is elevated with distribution season for mutual and pension funds. A look at the deviations in markets, a review of the risks, and 7-trading rules to follow.
With the November market surge, the risk of a correction is elevated with distribution season for mutual and pension funds. A look at the deviations in markets, a review of the risks, and 7-trading rules to follow.
As shown below, we are continuing to use this rally to raise cash and reduce portfolio risk heading into December. We will add back to our holdings on a decline.
Today, we are taking small profits in areas that are pushing 3-standard deviations above their 50-dma’s.
Equity Portfolio:
CMCSA – reducing from 2.5% to 2.%
KHC – reducing from 2.5% to 2%
GDX – increasing from 2% to 2.5% due to its move to 3-standard deviations below the 50-dma
ETF Portfolio:
IYT – reducing from 2% to 1%.
GDX – increasing position from 2% to 2.5%
9:35 am EST
Investors are ALL In. A correction is very likely over the next two weeks as pension funds have to rebalance and mutual funds have to distribute capital gains and income. Both have record low levels of cash on hand.
As noted in today’s Technically Speaking Reportinvestor exuberance is way ahead of reality currently. However, such is not surprising in a holiday-shortened trading week. With the “inmates running the asylum” there is general upside bias heading into Thanksgiving.
However, as we kick off the first two weeks of December, there will be selling pressure as mutual funds have to make capital gains distributions and pension funds will rebalance for year-end. Such could certainly weigh on asset prices short term particularly with the extreme extensions seen currently.
Such is particularly the case in Industrial, Basic Materials, and Energy. These sectors have gone parabolic over the last couple of weeks on a belief that a vaccine will cure what ails the economy. The problem with the economy is much more than the “pandemic” and these sectors are heavily dependent on stronger economic growth which will be unlikely given the massive increase in debts and deficits.
Take profits and rebalance portfolios. Move stop-loss levels up to the 200-dma for now.
It is also recommended that you take profits in Financials and reduce risk accordingly. Move stops up to the 200-dma for now. Financials depend on higher interest rates for increased profitability which are not coming due to the negative impact on the economy from rising rates.
Technology, Healthcare, Utilities, and Staples are all correcting a bit as of late. Such will provide a good opportunity for a “risk-off” rotation as portfolio rebalancing occurs over the next few weeks. Once we get into 2021, we will be able to start gauging the effectiveness of potential policies and just how soon a “vaccine” will or won’t be available.
November 23, 2020
12:05pm EST
Portfolio Trades – Equity & ETF Models
With the Money Flow “sell signal” now triggered, see 3-minutes on Markets, we are continuing to reduce our exposure gradually as we head into Thanksgiving.
Reducing TLT by 2.5% after a nice runup. Taking profits and reducing position size to 10% from 12.5%.
Reducing CRM by 0.5% from 2.5% to 2.0% (Equity Portfolio)
Reducing XLK by 1% from 10.5% to 9.5%. (ETF Portfolio)
Over the last two weeks, the media has been repeating the latest narrative – the “value rotation” is finally here. While small-cap value certainly had a big week, it is now the most overbought it has been in 15-years. More importantly, the small-cap space is the most vulnerable to an economic shutdown, rising virus cases which crimps spending, and sentiment. Also, there is actually very little “value” in value currently due to the price increases, and small-cap companies is the one area most burdened by debt. Be sure and know what you own.
We would recommend taking profits and reducing risk if you have exposure to this area.
Taking Profits In Bonds
Two weeks ago we added 5% to our TLT position in our portfolios. For us, bonds are a hedge against market weakness as money rotations to bonds for safety. That trade has worked well over the last few days and we sold 1/2 of our previous addition early last week, and we will sell another 2.5% to 5% most likely this week as bonds are now back to extremely overbought and running into the 200-dma.
Time To Sell Energy Stocks
We have been discussing a setup for an energy trade for several months and it finally occurred. However, both energy stocks and oil prices are very extended short-term so look for weakness here soon. In fact, every time oil prices have been this extended (note red circles) oil prices have corrected which will take energy stocks down with it.
Take profits, reduce risk, and rebalance as needed. Be careful speculating in this sector. Energy stocks need much stronger economic growth to increase profitability and that isn’t happening anytime soon.
NEW DASHBOARD LAYOUT
We are in the process of redesigning the dashboard to provide you a quick snapshot of what is going on, what’s driving markets, and some things to help you generate trading ideas.
Let me walk you through it.
Starting at the top you will see major market data. We will be adding selectable major market graphs very shortly.
We are moving away from writing lengthy articles, to running a “daily diary.” The Real-Time Commentary and Portfolio Trading Diary will house our ongoing comments throughout the day on what we are watching, trading, and looking at. Sectors, Markets, and Fixed income comments will be found here. Links to articles we write will also appear here.
Moving down, you will find a daily economic calendar and what is moving markets
Below that you will find the latest major news headlines from major news sources. MyNews and MyAlerts are specific to stocks in your portfolio, watch lists, or alerts (set alerts up in the Portfolio tab) Also, we have set up two tabs to show you what Dividends are being paid, and who is announcing Earnings, over the next 15-days.
Now that you know what’s going on and what is moving markets, it’s time to start thinking about generating some trading ideas.
We give you a list of the Top and Bottom-10 stocks in the S&P 500 index.
Next are the stocks with the highest and lowest momentum.
Lastly, and my favorite, is a heat map of the sectors of the market. CLICK on any stock in the heatmap and below the heat map, you will see its performance versus the S&P 500, our quick synopsis of the stock, and a list of comparative stocks to consider. Next to each symbol in the table click the (+) sign for a “popout” window of charting and analysis on the stock.
COMING SOON
We have a laundry list of new things coming soon:
Auto-generated portfolios for stock / etf selection
Advanced charting (save your settings and create your own styles)
Graphing fundamental data
Trade direct from your portfolio to your account. (Interactive Brokers)
Chart Click-To-Trade while in a chart, you can “right-click” and trade the stock in your IB portfolio.
Auto-Traded Models – you will be able to select a model and have it automatically managed for you.
New sentiment and trading measures will be added to the Market Internals page including our Technical Gauge, Greed/Fear Allocation Gauge, and our proprietary Money Flow indicator.
Financial planning tools
and more.
If you have any questions or comments simply click the MESSAGE BOX in the lower-right hand corner of the screen to drop us a line.
November 16, 2020
As noted in this past weekend’s Real Investment Report the market has gotten back to more extreme overbought, extended and bullish levels. Historically, such a setup has led to short-term corrections, or worse.
While the vaccine news on this morning is certainly welcome, the markets have already priced much of that into stocks currently. Considering a vaccine won’t be widely available to mid- to late-next year, the economic weakness will continue to weigh on profitability for now.
As such, we are taking profits in some of our more egregiously extended positions and will use a post-Thanksgiving correction to add back to holdings at a cheaper level.
Equity Portfolio – Taking Profits
CVX from 2.5% to 1.5%
CMCSA from 3% to 2.5%
GOOG from 2.5% to 2%
AAPL from 3% to 2.5%
VZ from 3% to 2.5%
UNH from 2.5% to 2%
CVS from 2% to 1.5%
TLT from 15% to 12.5%
ETF Portfolio – Taking Profits
CVX from 2.5% to 1.5%
XLV from 9% to 8%
XLP from 6.5% to 5.5%
XLB from 3% to 2%
TLT from 15% to 12.5%
November 11, 2120
EQUITY & ETF Portfolios:
While the Pfizer news caused a couple of days of sector rotation, the reality is that a vaccine is not coming soon. As such, the markets are going to start gravitating back to companies that can grow earnings regardless of the economic environment as people remain working from home and the virus remains a threat.
As such we used the pullback in CLX to add to our position. Also, bonds got extremely oversold (3-standard deviations below the 50-dma) which is an ideal setup for a trade.
In Both Portfolios:
Add 1% to CLX bringing the total weight up to 3% of the portfolio.
Add 5% to TLT bringing the total weight up to 15% of the portfolio.
November 4, 2120
EQUITY & ETF Portfolios:
While the actual Presidential election is still up in the air, it appears that the GOP will retain control of the Senate which greatly limits the ability to the President to do drastic things. As such, this shifts the focus of the market back to areas that can create earnings growth in a slower economic environment and areas that will benefit from more “stay-at-home” companies.
This clears the path for the market over the next couple of months of some of the downside risk, and with the money flow signal turning positive, we are adding to the “growth areas” of our portfolios.
EQUITY –
Selling 100% of SH
Selling 100% of DOX
Adding 1% to our current holdings of AAPL, CRM, ABT, CMCSA, NFLX, AMD, UPS, and KHC.
ETF –
Adding 1% to our current holdings of IYT, XLK, XLV & XLP
Adding 2% to our current holdings of XLY, XLC
November 2, 2120
EQUITY & ETF Portfolios:
As we have discussed in the newsletter over the last couple of weeks, we have continued to raise cash and de-risk models as we get closer to the election. While polls have tightened considerably in recent days, we have absolutely no idea who will win the election. However, such is not the risk. The risk to the markets is a “contested” election which could likely last days to weeks to find out the results. There are many states which have between 3-10 days to certify their vote tallies. Then there is the risk of the lawsuits that follow.
As such we are hedging our portfolios by adding a 5% position in SH – Short S&P 500 Index. We will remove the position as soon as we have some clarity on the election outcome and market direction.
Buy 5% SH in portfolios (new position)
October 27, 2120
EQUITY Portfolio:
Sell 100% of MCHP for a gain
Initiate 1% of AMD in portfolios
We are swapping out chip companies in the portfolio. We very much like the acquisition by AMD of XLNX which puts them in a prime position to take market share from INTC. We are starting with a 1% holding and will add to AMD on further weakness.
October 23, 2120
ETF Portfolio:
Reduce XLU by 1.5% from 3.5% to 2.0% weighting.
Utilities have gotten egregiously overbought in recent weeks and is due for a correction. We have milked that position for a bulk of its gains, so we will look for a correction to rebuild the position.
October 22, 2120
** UPDATE **
Equity Portfolio:
Buy 1% of GOOG bringing allocation up to 2% of the portfolio.
The position broke above the recent consolidation suggesting we could see higher levels in the short-term.
Prepping For The Election (Continued)
As noted during the entirety of this week’s portfolio transactions, we are continuing to prep for the election, and lack of stimulus, by raising cash and reducing risk as needed.
Equity & ETF Portfolio:
Sell 100% of AT&T (T)
We originally purchased AT&T with an expectation that value would provide some relative safety to the market. However, the position violated our stop-loss with the recent breakdown. We held the stock for earnings expecting an earnings beat might lift the stock to give us a better exit point.
This morning, AT&T reported earnings were actually were weaker than estimates but guidance was good and the stock popped nicely at the open. We used that as an exit for the position.
October 21, 2120
** Updated**
Prepping For The Election (Continued)
Continuing from yesterday’s portfolio update, we are continuing to slowly raise cash ahead of the election.
Equity Portfolio:
Reducing NFLX by 1.00%
Reduced TLT by 5% (from 15% to 10%)
ETF Portfolio
Reducing XLC by 1.00%
Reduced TLT by 5% (from 15% to 10%)
October 20, 2020
Prepping For The Election
Given the potential for a contested election, which is likely the biggest risk for the market short-term, we are beginning the process of raising a bit of cash in the portfolios. This is a process we will continue over the next week as reduce/sell laggards, take profits, and rebalancing hedges.
Once we get through the election, if everything goes smoothly we will then bring weightings back up in portfolios.
Equity Portfolio:
Reducing CRM by 0.50%
Reducing AAPL by 0.50%
October 8, 2020
Equity / ETF Portfolio Update
Lately, Utilities (XLU) have been on a run and have gotten both very extended and overbought. We are taking profits in the sector. DUK had a big jump due to takeover rumors from NEE. We are closing out the entire position to remove the “buyout risk” of something falling through. We were very overweight XLU so we are reducing that position by 50%.
In the Equity portfolio, we are adding 0.5% to our holdings of T and VZ.
In the ETF portfolio, we added 1% of the portfolio to XLB and XLY to bring those positions up to weight.
Equity Portfolio:
Sell 100% of DUK
Add 0.5% of portfolio weight to VZ bringing total weight to 3%
Add 0.5% of portfolio weight to T bringing total weight to 3%
ETF Portfolio
Sell 3.5% of XLU – Reducing weight from 7% originally.
Buy 1% of XLY – Bringing total weight up to 3%
Buy 1% of XLB – Bringing total weight up to 3%
October 6, 2020
Equity / ETF Portfolio Update – Adding To Long Holdings / Adjusting Fixed Income
As noted yesterday, with the President back at the WhiteHouse, the short-term risk trade against our long-positions was removed. With the break above the 50-dma yesterday, there is upside bias short-term potentially back to all-time highs. The MACD turned positive, but the Williams %R is starting to hit back into overbought territory.
Given the more bullish tone short-term, we are adding to some of our underweight positions that we previously took profits in, and adjusting our fixed-income bucket to add additional yield.
Equity Portfolio
Bonds
AGG – 100% of holding
PFF – Initiating a 5% position of the portfolio.
Equity
Adding 0.5% of each:
V – increase weight from 1% to 1.5%
KHC – increase weight from 1% to 1.5%
MCHP – increase weight from 1% to 1.5%
ABT – increase weight from 1% to 1.5%
ETF Portfolio
Bonds
AGG – 100% of holding
PFF – Initiating a 5% position of the portfolio.
Equity
XLB – initiate new position of 2% of portfolio value.
October 5, 2020
Equity / ETF Portfolio Update – Closing Short Position
As we discussed on Friday,
“We have written previously that the one thing that will trip up the markets is an “unexpected and exogenous” event.”
On Friday, we hedged both portfolios for a worse than expected outcome from the President’s COVID infection. This morning, he seems to be out of the woods and back on the path to recovery. Therefore, with the markets clearing the 50-dma, we are removing our hedges to allow our recent portfolio additions room to work.
Selling 100% of SDS (2x Short-S&P 500)
October 2, 2020
Equity / ETF Portfolio Update
We have written previously that the one thing that will trip up the markets is an “unexpected and exogenous” event. The majority of the time, the markets tend to price in things that are “seen,” such as the lack of fiscal support short-term or a “s***-show” of an election.
What they weren’t expecting was the President to contract COVID just 30-days before the election. There are many potential ramifications from his incapacity to run, VP Pence running for President, or nothing happening, and Trump fully recovers in a couple of weeks.
We don’t know. So, while the markets are still operating functionally today, we are taking a bit of caution and increasing our hedges by taking the following actions:
Adding 2% of SDS (2x Short-S&P 500) to hedge our recent additions. We will increase sizing if markets begin to deteriorate.
Adding 1% to GDX – increasing our weighting to 3%.
Adding 1% to IAU – increasing our weighting to 3%.
October 1, 2020
Equity Portfolio Update (We are aligning portfolio weights with our Sector ETF portfolio)
This morning we got stopped out of our holdings in VIAC. We had added a 1% position to start but “value” is still not getting any attention for the time being. Also, with COVID cases kicking up in the NBA and NFL, it does not bode well for revenues over the next several months. We will revisit the position at a later time. In the meantime, we are keeping our same communications exposure by adding slightly to T and VZ.
As we reduce that one position, we are adding to areas that have been performing stronger as of late. After increasing our technology weighting and adding GOOG earlier this week, we are now adding to our Healthcare sector.
Trades:
Sell 100% of VIAC
Buy 0.5% of T increasing weight to 2.5%
Buy 0.5% of VZ – increasing weight to 2.5%
Buy 1% of UNH – increasing weight to 2.5%
Buy 1% of JNJ – increasing weight to 3%
September 28, 2020
Portfolio Update
We are adding equity exposure this morning as we are getting buy signals on some of our indicators. We remain cautious with only 50% equity exposure including the trades below. We may likely add further if the major indexes can rise above their respective 20 and 50-day moving averages.
Equity Portfolio:
+1.5% GOOG
+.5% AAPL
+.5% MSFT
+.5% ADBE
+.5% NFLX
+.5% CMCSA
+.5% VZ
ETF Portfolio:
+2% XLK
+2% XLY
+1% XLV
+1% XLC
September 24, 2020
Portfolio Update
We are adjusting our bond duration exposure and shifting our credit quality up the scale a bit to provide an additional level of defense as we move into a potential hotly contested election. Also, the strength in the dollar rally, should it continue, will attract more dollars towards Government bonds.
Equity & ETF Portfolio:
Reduce AGG from 12.5% of portfolios to 6%.
Increase MBB by 3% from 10% to 13% of portfolios.
Add 6% of IEF to portfolios
September 23, 2020
Portfolio Update
We have been discussing the extreme oversold condition of the US Dollar index combined with an extreme net-short positioning for some weeks now. The negative impact of a dollar rally would be felt most in Emerging Markets, International, and Commodities.
Due to the dollar strength and the increasing potential that it is breaking out of its recent consolidation range, we are reducing IAU and GDX by half. Also hampering the positions over the last couple of days is options expiration. We like the positions long term so will look to add back the sales when the time is right. Keep in mind we may sell the other half before adding back.
Equity & ETF Portfolio:
Sell 50% of GDX – Reduce to 1% of the portfolio
Sell 50% of IAU – Reduce to 2% of the portfolio
September 18, 2020
Portfolio Update
We are continuing to rebalance and consolidate our Equity portfolio, as noted in our previous trade alert. Today, we are selling two positions that we can concentrate on our holdings in DUK and PSA.
Equity Portfolio:
Sell 100% of WELL
Sell 100% of AEP
September 16, 2020
Portfolio Update
We are adding a starter position to RTX in the portfolio today. We are continuing to look to add yield as we rebalance and consolidate holdings.
Add 1% RTX
September 14, 2020
Portfolio Update
As noted last week, we are continuing to rebalance and consolidate our Equity portfolio. As noted:
“The overall decision is to reduce the overall number of holdings, eventually, to 20-25 so we can run more concentrated positions in companies we like long-term. This will give our winners more of an impact on overall portfolio performance going forward.”
We are continuing this process today by making additional changes due to the recent sell-off and oversold condition of the market short-term.
Equity Portfolio:
Sell 100% of PG
Adding 1% to CLX bringing total position weight to 2%
Adding 0.25% to AAPL bringing the position to 2%
Adding 0.50% to MSFT bringing the position to 2%
Adding 1.00% to CRM bringing the position to 2%
Adding 1.00% to ADBE bringing the position to 2%
ETF Portfolio:
Adding 1% to CLX bringing total position weight to 2%
September 11, 2020
Portfolio Update
With our concerns growing about the speculative underpinning of the market, longer-term more extreme deviations and overbought conditions, and a still weak economic backdrop we are beginning to restructure our portfolios to be more nimble with respect to risk management, but still maintain performance.
The overall decision is to reduce the overall number of holdings, eventually, to 20-25 so we can run more concentrated positions in companies we like long-term. This will give our winners more of an impact on overall portfolio performance going forward.
We are starting this process today by beginning to sell positions that are not performing as expected.
We are selling 100% of the holdings in both portfolio models.
Sell 100% of XOM
Sell 100% of PFE
September 4, 2020
*** Trade Update ***
Selling 2.5% of our recent TLT purchase to take the profit on that position. Moving TLT back to target portfolio weight of 15% down from 17.5%.
Over the last couple of weeks, we have been prepping portfolios for this decline. Now, with a pretty brutal 2-days of selling, we are going to add some trading positions for a potential bounce next week.
Given the momentum markets are very hard to kill, it is likely we will see some attempts to jump back into the previous leaders next week. So we are going to add some small amounts to our momentum trades, and counter that exposure with additional value trades.
As noted in our previous trading update, we are continuing to follow our process of reducing risk as the deviation from long-term means is hitting historic extremes.
Since we have added another 10% to our Treasury Bond holdings (TLT) the need for the US Dollar hedge is no longer necessary. Also, given it is a small percent of the portfolio, it isn’t large enough to add any additional benefit at this juncture due to the increase in our bond allocation.
We are also selling our position in CSCO. The reason for the sale is simply to reduce laggards in the portfolio and raise a bit more cash to the portfolio for now. We still like the company fundamentally and will likely return it to the portfolio in the future if performance begins to improve.
Selling:
100% of UUP
100% of CSCO
August 31, 2020
As noted in this past weekend’s newsletter,we discussed the more extreme overbought and extended conditions of the market. We also discussed the potential rotation to value during any forthcoming pullback/correction in the market to reduce some of the most extreme overbought conditions we have seen throughout market history.
As such we are taking some actions in portfolios, as we have been, to continue to hedge against a potential risk-off rotation and correction.
EQUITY PORTFOLIO
Sell NFLX from 2.5 to 2%
Sell VZ from 1.5 to 1%
Sell ABT from 1.5 to 1%
Sell MSFT from 1.5 to 1%
Sell MCHP from 1.5 to 1%
Rebalancing, after taking profits recently, CRM and ADBE back to their model weights (1% each)
Buy 2.5% TLT increasing stake from 15% to 17.5%
ETF PORTFOLIO
Sell XLK from 8 to 6.5%
Sell XLC from 5 to 4%
Buy 2.5% TLT increasing stake from 15% to 17.5%
August 28, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
After the Fed’s announcement yesterday, we are using the opportunity to add back into our gold and gold miner positions.
Adding in both portfolios.
IAU – Buy 1%. (Increasing from 3% to 4% of the portfolio.)
GDX – Buy 1%. (Increasing from 1% to 2% of the portfolio.)
August 21, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
As we have been discussing lately, we are making subtle changes to the portfolio to rebalance the risk profile to a more defensive allocation. With markets overbought, on a money flow sell signal (see video), and entering into a pre-election September, we are raising a bit of cash today in the most aggressively overbought positions.
Today, we made the following changes:
Equity Portfolio:
SELLS
100% EFV from 3.00% to 0.00%
Sell 0.5% AAPL from 1.75% to 1.25%
Sell .5% ABBV from 2.00% to 1.50%
Sell .5% ABT from 2.00% to 1.50%
Sell .5% ADBE from 1.50% to 1.00%
Sell .5% AMZN from 2.50% to 2.00%
Sell .5% CRM from 1.50% to 1.00%
Sell .5% PG from 1.25% to 1.00%
Sell .5% V from 1.50% to 1.00%
Sell .5% VZ from 2.00% to 1.50%
BUYS
Buy 0.5% NFLX from 2.00% to 2.50%
Buy 1.00% PFE – New Position
ETF Portfolio
Sell .5% XLI from 1.50% to 1.00%
Sell .5% IYT from 1.50% to 1.00%
Sell 100% EFV (Liquidate position)
August 18, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
As discussed yesterday:
“We are starting to make subtle changes to the portfolio to rebalance the risk profile to a bit more defensive allocation. We are doing this is two steps by making ‘sells’ today, and tomorrow morning we will make the ‘buys.'”
Today, we made the following changes:
Equity Portfolio:
Buy 1% VIAC (New position)
Buy 1% WELL (New position)
Buy 1% PSA (New position – Trade corrected for proper entry price $198.99)
“With the markets overbought on several measures, there is a downside risk heading into the end of the month. These risks come from several fronts we will discuss momentarily. However, from a technical perspective, the downside risk is about 5.6% to the 50-dma and 9.4% to the 200-dma. (Shown above)
A 5-10% decline in any given year is not outside of the norm. However, since investors have entirely forgotten what a drop feels like, a 5-10% slide will “feel” worse than it is.”
With this in mind we are starting to make subtle changes to the portfolio to rebalance the risk profile to a bit more defensive allocation. We are doing this is two steps by making “sells” today, and tomorrow morning we will make the “buys.”
REDUCING POSITIONS:
UPS from 1.25% to 1.00%
UNH from 2% to 1.50%
MSFT from 2% to 1.50%
PG from 1.50% to 1.25%
WMT from 1.25% to 1.00%
CMCSA from 2% t0 1.50%
August 14, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
As noted yesterday, we are beginning the process of adding some “value” to the portfolio. We added to both portfolios a 3% weighting in International Value (EFV) with a 3.46% yield. We are in the process of adding a couple of other value related names here soon.
We continue to hedge our exposure opportunistically, so we are adding to our long-dollar position which is extremely oversold and deviated from its long-term mean. More importantly, the net short positioning in the dollar is now at levels which historically coincides with bottoms.
That net-short positioning in the dollar is also a “Buying” opportunity for Treasury bonds as well.
We are adding:
UUP increasing 1% from 2% to 3% of portfolio.
TLT increasing 2.5% from 12.5% to 15% of portfolio.
STOP ALERT – CSCO (Update)
CSCO is extremely oversold after yesterday’s selloff, so we are looking for a bounce to sell into. We will update when we execute.
August 13, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
As noted yesterday, we are beginning the process of adding some “value” to the portfolio. We recently added AT&T, and previously bought XOM. (Seelatest value report here)
We are adding to both portfolios a 3% weighting in International Value (EFV) with a 3.46% yield. We are looking to add a couple more “value” holdings to the portfolio over the next couple of weeks as well.
Buy 3% EFV
STOP ALERT – CSCO
We have been stopped out of Cisco Systems (CSCO) with the earnings report today. Earnings were good but forward guidance was disappointing. We are going to wait until tomorrow to sell the position to see if the knee-jerk selloff this morning gives way to some early buyers in the morning. Net loss will be between 5-6% on the position.
August 12, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
As we have noted over the last few weeks, both precious metals have become grossly overextended, and as such, we were expecting a pullback. In this week’sMajor Market Buy Sell Review we stated the following:
Gold is extremely overbought and starting to push 4-standard deviations above the 200-dma.
We suggest taking some profits for now and look for a pullback to increase our sizing.
We had previously taken profits, and hedged the position with a long $USD trade, but the pullback was so sharp yesterday it gave us an opportunistic entry point to add back into our Gold Miners (GDX) that we had bought and sold previously.
We are also making room in the portfolio to add some additional “deep value” positions to go along with our recent purchase of AT&T (T).
EQUITY PORTFOLIO
Buy 1% GDX
Sell 100% of BLL
Sell 0.5% of CLX (Holding 1%)
ETF PORTFOLIO
Buy 1% GDX
Sell 0.5% of CLX (Holding 1%)
August 6, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
As noted in our“Value Seeker Report” this morning, we added a 2% weighting of AT&T (T) to both portfolios this morning. We continue to look at building a small portion of the portfolio based on “value,” plus the 7% dividend yield gives us return while waiting for appreciation.
Buy 2% T
August 3rd, 2020
TRADE UPDATE – EQUITY PORTFOLIOS
** Trade Correction: On 7/28 we sold EFA but incorrectly listed the sale price as $83.701 vs $63.701. That was corrected today.
After adding to our technology holdings last Thursday, Apple (AAPL) sprinted higher after earnings and is well into 3-standard deviation extremes from its moving average. We are taking some profits here.
SELLING 0.5% Apple taking it from 2% to 1.5% in portfolio models.
We have been looking for a candidate to add to our Technology holdings in the semi-conductor space. While there are other companies we like better, many of theme (like Nvidia as 20x price-to-sales) are trading at extreme valuations.
We are added 1% of Microchip Technology (MCHP) to our portfolios.
It is currently trading at a much more reasonable valuation (although still expensive), EPS have been rising without the benefit of share buybacks, and carries a 1.45% yield currently. We are carrying a close stop at $100. If our thesis plays out we will add to the position on a breakout above current resistance.
Buy 1% – MCHP
July 30, 2020
TRADE UPDATE – EQUITY AND ETF PORTFOLIOS
As discussed in Tuesday’s Sector Buy/Sell Review– we there were several sectors like Transportation, Materials, and Industrials which were getting more extreme in terms of their overbought conditions. Technology, conversely, has been in a consolidation over the last couple of weeks working off some that extreme short-term.
As we also discussed, the U.S. Dollar is deeply oversold, which is why we are accumulating a position in it now, which will also weigh on sectors with large international exposures when it rebounds. As such we have rebalanced some weightings in portfolios but have NOT increased overall exposures.
In the EQUITY Model.
After taking profits in our tech positions at the peak a couple of weeks ago, we added back to those expsoures.
ADBE 1 to 1.50
CRM 1 to 1.50
AAPL 1.5 to 2
NFLX 1.5 to 2
AMZN 2 to 2.5
MSFT 1.5 to 2
We sold 100% of the following to reduce our dollar exposure risk:
RTX – Sold All
NSC – Sold All
In the ETF Model we made the following changes.
Add 2% to XLK
Sell 1% XLI
Sell 1% IYT
July 28, 2020
TRADE UPDATE – EQUITY AND ETF PORTFOLIOS
As discussed in Monday’s Major Market Buy/Sell Review– the U.S. Dollar is now 3-standard deviations oversold. Also, the over riding sentiment from the mainstream media is massively negative. (This is always a good contrarian indicator).
Given the deep oversold condition of the dollar, we are expecting a counter-trend rally over the course of the next month which will coincide with a correction in EXTREMELY extended Gold, Silver, Commodity, International and Emerging Market positions.
We have taken the following actions in our portfolios today:
EQUITY PORTFOLIO
Sell 100% EFA
Sell 1% IAU
Buy 1% UUP (Bringing weighting up to 2% – we are scaling up the position.)
ETF PORTFOLIO
Sell 100% EFA
Sell 100% EFG
Sell 1% IAU
Buy 1% UUP (Bringing weighting up to 2% – we are scaling up the position.)
July 24, 2020
TRADE UPDATE – EQUITY AND ETF PORTFOLIOS
With Gold and Silver getting all the attention as of late, it is important to know when this happens, it is generally a sign of excess and a good time to take profits and hedge some risk.
For precious metals, commodities, and emerging and international markets, the key to watch is the dollar. The fall in the dollar over the last couple of months has sent those “dollar sensitive” assets soaring. With the dollar now deeply oversold on an intermediate term basis, a reversion is quite likely. Timing is all the key issue.
We are starting to build a long dollar position in portfolios to hedge our risk in Gold and International Markets. We are going to start small and add to the position as it bottoms and turns up.
Buy 1% of UUP.
July 21, 2020
TRADE UPDATE – EQUITY AND ETF PORTFOLIOS
Yesterday, the S&P 500 broke out of its 45-day long consolidation, this is “bullish” especially when combined with the recent “Golden Cross” of the 50- and 200-dma.
We have also recently discussed the weakening of the US Dollar and the potential benefit to commodities and international stocks. As such we have been slowly increasing exposure to these areas. (I am not a huge fan of international exposure for a multitude of reasons discussed previously, so these will likely not be long-lived positions.)
Today, we are adjusting our holdings a bit to both more closely align us with our benchmark index weightings, and to take further advantage of the weakening of the US Dollar.
Equity Model:
Buying:
1% ADBE
1% CRM
2% EFA – adding to existing position.
0.5% BLL – adding to existing position.
ETF Model:
Buying:
3% EFG – international growth to compliment current value tilt.
1% XLV – adding to existing position.
1% XLC – adding to existing position.
1% XLI – adding to existing position.
July 16, 2020
TRADE UPDATE – EQUITY AND ETF PORTFOLIOS
After failing to break above the June highs again yesterday, we are closing out of our SPY “rental trade” for the time being. We we look to re-add the position on either a further pullback towards the 50-dma that works off some of the short-term overbought condition, or a breakout above the June highs and the recent consolidation range.
Selling 100% of SPY
July 14, 2020
TRADE UPDATE – EQUITY AND ETF PORTFOLIOS
We are continuing our “risk” rebalancing in portfolios again this week after selling extremely overbought positions in Technology last week. We are selling our “Rental Trade” in DIA in both models to free up cash to add exposure to defensive rotation areas of the portfolio.
Equity Model
Selling:
CLX from 2% to 1.5%
UPS from 1.5% to 1.25%
WMT from 1.5% to 1.2%
Adding To:
BLL from 1% to 2%
XOM from 2% to 2.5%
CVX from 2% to 2.5%
CMCSA from 1% to 2%
Sector Model
Selling
CLX from 2% to 1.5%
Adding:
XLI (New holding) to 2%
XOM from 2% to 2.5%
CVX from 2% to 2.5%
July 10, 2020
TRADE UPDATE – EQUITY PORTFOLIOS
We are continuing to reduce risk slightly in portfolios as we head into August and September (typically weak performance months) by trimming out profits in stocks that are grossly extended and deviated from intermediate-term moving averages.
Today we are trimming slightly two more positions.
Reducing COST from 1.5% to 1%, and
Reduced PG from 2% to 1.5%.
July 9, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
As we continue to watch the unfolding of the economic environment, we have grown ever more risk adverse to Real Estate due to potential impact of revenue shortfalls. While we liked the yield, performance has been a drag to the portfolios.
In both portfolios we are selling Real Estate:
SELL 100% of MPW
SELL 100% of WELL
SELL 100% of XLRE
We are adding 3% of EFA to both portfolios as we are seeing continued weakness in the US Dollar. With European countries handling the virus better than the U.S. combined with a potentially weaker US Dollar, we are hedging portfolios with a small weighting of International exposure.
BUY 3% EFA
July 8, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
As discussed in today’sPortfolio Position Reviewwe took action in both of our models to take profits in our positions which have been extremely overbought and deviated from their 200-dma. Such extensions tend not to last long, and we will look to add back to our holdings following a correction or consolidation that reduces risk to a degree.
In the equity models we reduced our holdings in the following:
AAPL from 2% to 1.5%
AMZN from 3% to 2%
NFLX from 2% to 1.5%
MSFT from 2% to 1.5%
In the Sector Models we reduced the following:
XLC from 5% to 4%
XLK from 7% to 6%
July 6, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
Added 2.5% SPY in both portfolios to bring the total weight up to 5%.
In the EQUITY Portfolio – we made changes to rebalance the compensation of the portfolio but did not change overall equity exposure by much. Hedges remain in place.
Reduced DUK and AEP by 1% each to make room in the portfolio to rebalance equity exposure.
Added 1% to CSCO to bring up to weight in portfolio.
Added 1% to BLL as we are underweight industrials in the portfolio.
Sold 100% of INTC which continues to underperform and broke our stop level.
July 2, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
Bought 2.5% SPY in both portfolios to replace the sale of 2.5% of DIA.
Sell all (2%) of XLE in the Sector Portfolio
Sell (rebalance) UPS to take profits and bring it back to the 1.5% model weighting.
Wishing you a happy and festive holiday weekend!!
June 30, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
We reduced our equity exposure slightly this afternoon as follows:
Sell 2.5% DIA – leaves 2.5% remaining
Sell CLX to bring it back to the 2% model weighting.
June 23, 2020
TRADE UPDATE – EQUITY & ETF PORTFOLIOS
After a brief rally in the US Dollar, we are selling 100% of UUP to reduce that hedge in the portfolio after making adjustments to our bond portfolio. (We are just rebalancing the hedges in the portfolios.)
A couple of weeks ago, we took profits in both XOM and CVX near their recent highs. Since then both have pulled back to support and gotten short-term oversold. As such, we are taking the opportunity to slighting increase those holdings in portfolios taking them back to 2% of the portfolio each.
Increasing XOM to 2% of Portfolio
Increasing CVX to 2% of Portfolio.
June 16, 2020
With the update to the corporate bond buying program, Trump’s touting of an “infrastructure bill,” and better than expected economic data on the retail sales front, the market was able to recover from yesterday mornings selloff and confirm support at the 200-dma.
With push by the Fed to support the corporate bond market we are swapping IEF for AGG to pick up some corporate bond exposure and improve our overall portfolio yield. This is in conjunction with our swap yesterday of SHY for MBB.
Equity & ETF Portfolio
Sell 100% of IEF
Buy 12.5% of portfolio in AGG
Buy 5% DIA
June 15, 2020
This morning we swapped SHY for MBB to pick some additional yield for the portfolio. There is little “upside” currently with rates so low, but with the Fed buying mortgage backed securities, we can add some “yield” to the portfolio with some potential upside and defensive positioning against a market decline.
Selling 100% of SHY
Buying 10% of MBB
June 12, 2020
After the market dropped over 5% yesterday and successfully tested the 200 day moving average, we made slight additions to the portfolios. The positions are small and we remain vigilant to potentially more downside as the S&P 500 sits on top of its 200 day moving average.
Equity Portfolio Buys
CMCSA – Initiate 1% position
CSCO – Initiate 1% position
ETF Portfolio Buys
XLE – Add 1% to bring total to 2%
XLP – Add 1% to bring total to 5.5%
We continue to hold our TLT and UUP positions for now as a hedge.
June 9, 2020
After adding some defensive rotation exposure yesterday, we took profits in a couple of positions that are extremely overbought currently.
Equity Portfolio Sells
PHG – Sell 100% of position
XOM – Sell down to 1%
CVX – Sell down to 1%
ETF Portfolio Sells
PHG – Sell 100% of position
XOM – Sell down to 1%
CVX – Sell down to 1%
XLE -Sell down to 1%
We are continuing to hold our TLT positions for now as a hedge.
June 8, 2020
The rally in the most fundamentally weak sectors of the market such as small, mid, materials, and industrials on the hope of a “V-shaped” recovery has gotten well ahead of itself and the potential for recovery. As discussed in today’s Major Market Review, those sectors are now 3-standard deviations overbought will Treasury bonds are 3-standard deviations oversold.
Our expectation is the momentum chase will fade pretty quickly as the realization of a slower economic recovery becomes more prevalent. This should lead to a defensive rotation in fairly short order where money starts to look for safety over risk.
As such we made the following trades today in both the Equity and ETF Models
Equity Model:
Added To
VZ – 1.5% to 2%
DUK – 2% to 3%
PG – 1.5% to 2%
INTC – 1% to 2%
NFLX – 1% to 2%
MSFT – 1% to 2%
AEP – 2% to 3%
ABT – 1.5% to 2%
ABBV – 1.5% to 2%
JNJ – 1.5% to 2%
AMZN – 1.5% to 3%
AAPL – 1% to 2%
ETF Model:
Added To:
XLK – 6% to 7%
XLV – 5% to 7%
XLRE – 4% to 7%
XLU – 3% to 7%
June 5, 2020
Selling 100% of GDX to close out for gain. Holding IAU for now.
June 4, 2020
Today, we sold Community Healthcare REIT (CHCT) in our portfolio in its entirely.
While we like the position very much, and there is nothing wrong the holding, we made the decision to sell based on the lack of liquidity for the shares in the market. We had an extremely difficult time liquidating the large number of shares that we owned (roughly 1/2 of the daily volume.).
We will be replacing the position with another REIT very shortly as soon as we identify the position.
*** UPDATE ***
We swapped CHCT with WELL in the portfolio at a 1.5% position. (1/2 target weight)
June 3, 2020
On Monday, we removed our “rental trade” on the S&P 500 for a small profit due to the rising protests across the country which could impact the economic reopening. The market didn’t even notice and has continued to push higher. With the market up 4-days consecutively, we will wait for a small correction back to towards the 200-dma to re-add that broad market position to the portfolio.
However, we continue to add equity exposure in areas that we like, with a focus on dividend yield, and continue to hedge that equity risk with offsetting bond and dollar exposures. (Bonds and the dollar are extremely oversold, so a rotation is likely near term which will coincide with a short-term market correction or consolidation)
In the EQUITY PORTFOLIO we are adding:
CVS – 1.5% – With people returning to activity, sales should pick up on the retail side.
UPS – 1.5% – Economic re-opening should see a pick up in shipping rates.
NSC – 1.5% – Same with transportation.
In the ETF PORTFOLIO we added:
XLU – 1% addition to current holdings.
IYT – 3% – Transportation sector to capture an increase in shipping with reopening.
In BOTH PORTFOLIOS we hedged the increases in equity risk with an addition of 2.5% to TLT which is currently deeply oversold relative to equities.
June 1, 2020
Last week, we added a 5% “rental trade” in SPY to the portfolio for a break above the 200-dma.
While the backdrop to the market is still bullish, as noted this weekend, we are VERY overbought short-term and extended on many measures.
With the riots breaking out all across the country, this is a new dynamic to the markets that potentially leads to some short-term selling. We are going to step aside on the rental trade at a small gain until we see how things shake out.
We will re-add the position to the portfolio when the risk/reward becomes a bit more clear.
May 28, 2020
If you didn’t read our trade update yesterday, we added 5% to SPY. For more commentary on why, read Michael’s note below:
Over the last couple of weeks we have talked about the consolidation of the markets between the 50% retracement levels and the 200-dma. This consolidation can either be bullish or bearish depending on which way it breaks out of that consolidation.
Today, on a second attempt, it appears the market will break out above the 200-dma and hold this time. With that breakout we are adding a 5% weighting to both EQUITY and ETF Models in SPY.
If the breakout holds the entirety of the week, or we have a pullback that holds the 200-dma, we will then add a second tranche of 5% to the portfolio.
Stop-loss is currently set at 2965
May 22, 2020
TRADE UPDATE: EQUITY & ETF MODELS
My wife and I went to the store today to pick up some cleaning supplies for the house. There were NONE in stock at 8-different locations we went to. After selling a portion of our CLX holdings at $205.69, we are adding 1% back to portfolios at $198.22 bringing our holding to 2%.
However, we are keeping our equity weighting the same by making some offsetting sells.
EQUITY MODEL
Buy 1% CLX
Sell 100% of CMCSA – stock is overbought, underperforming, and at a gain. We are going to take the profits and re-evaluate our communications holdings.
ETF MODEL
Buy 1% CLX
Sell 1% XLC – reduces our weighting back to 5% of the portfolio, selling recent addition for a gain.
May 21, 2020
TRADE UPDATE: EQUITY & ETF MODELS
In keeping with our process, and as we have detailed weekly in our newsletter, as we continue to add equity “risk” to portfolios, we also “hedge” that risk to protect our capital. In keeping with that process, we have added to our bond portfolio along with rebalancing duration a bit.
IN BOTH MODELS
SELL SHY – we reduced short-duration bond exposures from 11% to 8%.
BUY TLT – increased our 20-year duration from 8% to 10%
BUY IEF – increased the 7-10 year duration from 10% to 12.5%
May 20, 2020
TRADE UPDATE: EQUITY & ETF MODELS
With the markets successful retest of the consolidation breakout above the 61.8% retracement level today, we are adding additional exposure to our portfolio models at the close today.
EQUITY MODEL
INTC – 1.5% – Intel is a maker of semiconductors and broke above its consolidation channel today.
PHG – 1.5% – Phillips makes a variety of health care related products, but we are particularly interested in the UV (ultra-violet) lighting for disinfection purposes.
ETF MODEL
PHG – 1.5%
May 18, 2020
TRADE UPDATE: EQUITY & ETF MODELS
As we have been doing over the last couple of months, we continue to incrementally add exposure to portfolios as previous support levels hold, and resistance levels are taken out. Today, the markets broke out of the previous trading range we addressed over the weekend, which led us to increase exposure across both models.
Equity Model Additions: Current weighting next to symbol:
UNH – 1.5%
CMCSA – 1.5%
AEP – 1.5%
VZ – 1.5%
AEP – 1.5%
DUK – 1.5%
IAU – brought up to 4% of the portfolio
XOM – 1.5%
CVX – 1.5%
ETF Model Additions: Current weighting show next to symbol:
XLK – 6%
IAU – 4%
XLV – 5%
XLRE – 3%
XLC – 6%
XLU – 3%
XOM – added 1% to round out position in XLE
CVX – same as XOM
May 15, 2020
TRADE UPDATE: EQUITY MODEL
We added to our current holding of CHCT (Community HealthCare REIT) after it held support and rebounded late yesterday. As we have noted in our recent commentary, REITs have been lagging the market, so we have added to our REIT exposure this week to bring our weighting up for a rotational market play.
Earlier this week, we added MPW (Medical Properties REIT).
We also added 1.5% of Visa (V) to our equity holdings this morning as well.
Despite a slate of terrible economic news, the liquidity being pushed into the market is keeping stocks elevated so we are trading accordingly. We are currently on a seasonal SELL signal, so we continue to hedge our equity increases with offsetting purchases in fixed income. We added to IEF earlier this week bringing our overall weighting to 10%.
May 13, 2020
TRADE UPDATE: EQUITY & ETF MODELS
UPDATE – ERROR CORRECTION: We added 11-shares to IEF after the close today for a transaction we missed in November, 2019 in the ETF Model.
In both the equity and sector models we:
Added 2% of IEF to bring the total holding to 10%
Rebalanced and took some profits on CLX by reducing it down from 1.5% to 1% of the portfolio.
We still like CLX and believe their sales/revenue will be strong as the need for their products will improve upon the reopening of the economy. The stock was on a tear and we wanted to take some profits and hopefully add back to CLX at lower prices.
Trades will be posted once we get settlement details from the custodian.
May 11, 2020
TRADE UPDATE: EQUITY & ETF MODELS
(Trade Error – I entered the wrong symbol of CVS on the initial trade. I have corrected that in the portfolio.)
Equity Model:
We added
1/2 position (1.5%) of WalMart (WMT) to the portfolio on its recent pullback to support.
Brought Costco (COST) up to 1/2 position by adding .75% to our previous holding.
ETF Model
We added
1% to Staples (XLP) bringing that sector up to 4.5% of the portfolio.
1% to Communication (XLC) bringing exposure up to 5% of the portfolio.
Technology (XLK) remains at 5% of the portfolio
Healthcare (XLV) is slightly underweight at 4%. (Will likely be our next addition)
Real estate is lagging in performance and given the “yield chase” preference in the market, we will likely see some “catch up” in the sector over the summer. (For more on this reasoning please review our report onRelative Value Sector)
May 8, 2020
TRADE UPDATE: EQUITY & ETF MODELS
We are continuing to use the rally in the market to concentrate our holdings and rebalance the models the next leg of the market.
We SOLD 100% of Conagra Foods (CAG) in both portfolios for a small gain.
In the Equity Model we added 1.5% MPW (Medical REIT) to our Real Estate holdings of CHCT. This brings our total exposure to 2.25% currently.
In the ETF Model we added a 2% weight to XLRE (SPDR Real Estate).
Real estate is lagging in performance and given the “yield chase” preference in the market, we will likely see some “catch up” in the sector over the summer. (For more on this reasoning please review our report onRelative Value Sector)
May 7, 2020
TRADE UPDATE: EQUITY & ETF MODELS
After a 36% gain in GDX we are rebalancing the position back to our current model weight of 1.5%. Gold miners are extremely overbought and need to correct a bit before we can add back to the holding. We are looking to increase our weighting to 3% of the portfolio on the next opportunity.
May 5, 2020
TRADE UPDATE: EQUITY & ETF MODELS
With today’s rally, we are selling 100% of our “rental trade” in the S&P 500 (SPY) for a small gain.
While there is certainly an ability for markets to rally tomorrow, there is so much economic data coming into the end of the week on the employment front, we are just going to step aside and evaluate the data and reconsider our equity exposure at that time.
Given that we are heading into the seasonally week period of the year, the risk/reward dynamics aren’t great so we will take small wins where we can get them.
May 4, 2020
TRADE UPDATE: EQUITY MODEL
Our SPY trade is flirting with its stop loss level, so we are watching that closely.
However, we are reducing our equity exposure in the Equity Portfolio by 1.5% today by selling the remaining holdings of PEP and CVS for gains.
Heading into summer we are wanting to lower our risk profile in both portfolios to 30% equities, or less by adding hedges, as risk remains elevated.
Also, while we like both companies, our goal is to consolidate, and concentrate the number of holdings that we have in portfolios to 20-25 with larger weightings as we come out of the current malaise. This is just the first steps in that process. This does not preclude us from buying these shares back in the future.
May 1, 2020
TRADE UPDATE: EQUITY MODEL and SECTOR MODELS
We are taking profits in Merck (MRK) today selling 100% of the position.
We are sitting on our STOP LOSS for our SPY trade, but need to close below, and remain below on Monday to confirm the break if it occurs. We will update accordingly.
Part of the process this summer is to reduce the total number of equity holdings in the portfolio to 20-25 and run a more concentrated equity positioning coming out of this current consolidation/bottoming/bear market process. We are evaluating each position in the portfolio for long-term value, positioning, and relative performance.
Watch for changes.
April 30, 2020
TRADE UPDATE: EQUITY MODEL and SECTOR MODELS
Over the last few weeks, we have been steadily increasing equity exposure, but balancing that exposure with hedges against risk. This one step forward and pause method allows us to continue managing portfolio risk in a market that will likely correct in the month ahead. (Nothing goes straight up…even with QE)
Today, we added to existing holdings which have more “defensive” properties to them. This is setting us up to eventually start adding a hedge to our portfolio when we see a break of the bullish trendline from the recent lows.
Equity model: Increased exposure from 0.75% to 1.5% of portfolio: AAPL and MSFT
ETF model: We added 1% each to XLV now 3%, XLU now 2% and XLP now 3.5%
April 28, 2020
TRADE UPDATE: EQUITY MODEL and SECTOR MODELS
To help hedge our increased exposure to equities we added 2.5% of TLT to both models. This increases our total holdings of TLT to 7.5%.
Trade details will be released when the allocations settle at the custodian.
April 27, 2020
TRADE UPDATE: EQUITY MODEL and SECTOR MODELS
In this past weekend’s newsletter we discussed the market being range bound and that a breakout would likely lead the market higher. To wit:
“If the markets can rally more on Monday and break above the downtrend, the 61.8% retracement level becomes a viable target. Above that resides the 200-day moving average. Both levels are going to provide formidable resistance to a move higher.”
With the breakout on Monday, we added a “RENTAL TRADE” for that move using the S&P 500 ETF (SPY) as our proxy position. We put that on at the end of the day.
Position size is 5% of our portfolio.
Stop-loss is the 50-dma at $278
Target for trade is $293.60 to $297.60
This is a trade only, and we fully expect to get stopped out. (Risk/Reward is not optimal.)
April 24, 2020
TRADE UPDATE: EQUITY MODEL and SECTOR MODELS
As has been commonplace for us over the last couple of months, as we continue to add some equity exposure in areas that we like, or think are undervalued, we are hedging that risk accordingly.
Previously, we discussed reducing our bond portfolio to align with our reduced equity exposure, however, over the last couple of weeks, we have been adding positions in CLX, MRK, CAG, XLE, XOM, and CVX, along with increasing exposures in our Staples (XLP), Healthcare (XLV) and Communications (XLV).
Today, we are increasing our bond exposure a “smidge” to compensate for the risk of increased equity exposure by adding a 5% weight of TLT (iShares 20-Year Treasury Bond) to our portfolio.
This will increase our bond “duration” a bit so that if the market declines, the pickup in yield will hedge our equity risk to some degree.
April 23, 2020
TRADE UPDATE: EQUITY MODEL and SECTOR MODELS
Over the last few days, as the oil price rout has ensued, energy stocks have been providing a very encouraging relative outperformance in the sector. We have discussed for quite some time that we have been looking for a reasonable risk/reward setup to begin building positions into our portfolios.
Today we are starting that building process. We have added 1% into our models as follows:
Equity Model:
Exxon Mobil – XOM
Chevron – CVX
ETF Model
SPDR Select Sector Energy ETF (XLE)
On our ALERTS page (In the PORTFOLIO TAB) we are adding our stops AND our breakout buy levels to add to our holdings.
XOM – Add @ $46.50 / Stop set @ $38
CVX – Add @ $91 / Stop set @ $78
XLE – Add @ 37 / Stop set @ $30
***We just rolled out the ability to set email price alerts on your RIA Pro portfolio holdings. In the Portfolio tab go to Alerts. From this screen you can set alerts based on the stock price or daily percentage change. When your alerts are triggered you will receive an email.
April 14, 2020
TRADE UPDATE:
EQUITY MODEL and SECTOR MODEL
In both models we bought 3% of UUP, and added 3% IEF, .50% of CAG, and .50% of CLX
We sold all of STIP 5% in both models
In the equity model we added: .75% PG
In the sector model we added 1% XLP
We sold STIP and took profits as inflation expectations have risen from near zero to 1.25%. Our concern is that another bout of stock weakness and economic concerns would revive deflationary concerns. We may likely buy STIP or TIP in the future as our inflationary concerns rise.
We added dollar exposure (UUP) to both portfolios as we recognize that a shortage of dollars globally should promote a stronger dollar.
Despite the strong rally we remain concerned this is a bear market rally and are buying conservative stocks/sectors that we think have value and whose earnings should hold up well in a recession.
We will have more details on trades shortly when they become available from our custodian.
April 7, 2020
TRADE UPDATE:
EQUITY MODEL and SECTOR MODEL
In both models we were stopped out of SH and sold all of the shares.
In the equity model we bought: 1% of the following: IAU, GDX, DUK, RTX
In the sector model we bought 1% of the following IAU, GDX, XLU
Despite the strong rally we remain concerned this is a bear market rally. We will have more details on trades shortly when they become available from our custodian.
April 6, 2020
TRADE UPDATE:
EQUITY MODEL and SECTOR MODEL
In the equity model we sold UTX (United Technologies) and Bought RTX (Ratheon Technologies) to account for the merger over the weekend. This is simply a bookmark entry to account for the merger. We did not add/reduce any exposure.
We are being stopped out of our short-hedge potentially in the morning. If the market opens down in the morning, we will maintain the hedge. Otherwise we will close it our tomorrow. Today’s action smacks of a short-covering “bear rally” so we are looking for confirmation of a breakout above last weeks consolidation highs.
April 2, 2020
TRADE UPDATE:
EQUITY MODEL and SECTOR MODEL
We added a second round of 2.5% of SH (S&P 500 Short) into both portfolios.
Stop is 2600 on the S&P 500 Index.
April 1, 2020
TRADE UPDATE:
EQUITY MODEL and SECTOR MODEL
The market failed at previous resistance confirmed by today’s sell-off. We are going to start building a hedge into our portfolios which will eventually get to 10% of the portfolio.
We started today by adding 2.5% of SH (S&P 500 Short) into both portfolios.
If the market opens up tomorrow, we will add another 2.5%, etc.
Stop is 2600 on the S&P 500 Index.
March 31, 2020
TRADE UPDATE:
EQUITY MODEL and SECTOR MODEL
Equity Model- Selling Visa (V) and buying 1% of ConAgra (CAG)
Sector Model – Adding 1% of CAG
We are concerned that delinquencies and defaults will surge at Visa and instead prefer to keep leaning towards the safety and consistency of needed staples.
March 30, 2020
TRADE UPDATE: EQUITY MODEL
We are rebalancing holdings in the equity model this morning to continue shifting our risk profile to a move conservative stance for the next month as we continue to progress through the onslaught of poor economic data coming our way.
Selling 100% of KHC and HCA.
We still like these positions longer-term but had to sacrifice them to add to our stronger positions for now. We will buy them back at a later date most likely.
Added to: JNJ, ABT, and ABBV
We doubled our holdings in these companies which are on the forefront of a vaccine, testing and distribution of products for the COVID-19 pandemic. Plus we like the healthcare space going forward on an earnings basis.
March 27, 2020
TRADE UPDATE: BOTH MODELS
Selling 100% of QQQ
We placed a trade on QQQ for a “bear market rally,” which has potentially reached its logical conclusion. Plus since bad things typically happen over the weekend, we are going to take the “win” for now and lock in some gains.
On Monday, we will see where the market opens and then evaluate our next set of trades.
Importantly – coming in our weekend newsletter:
The long term bull pattern that existed since the 3/9/09 is over. That means the pattern of investors confidently buying every decline is over.
The market became historically oversold on 3/23 using many metrics and that oversold condition coincided with the long term support area of S&P500 2110-2180.
Short covering and rebalancing has a lot to do with the size and speed of the 3 day rally. Also, we know that the lack of ETF liquidity played a role.
Technically the market (S&P500) can still go up 6.9% higher from here to hit the 50% retracement level (3386 – 2237 = 1149/2 = 574 + 2237 = 2811….2811/2630 = +6.9%. I would not bet on it.
The S&P500 will unlikely hit a new high this year, and potentially in 2021 as well.
March 26, 2020
**We fixed our 60/40 Index Benchmark in the RIA Pro Portfolio graphs. The prior benchmark was not static. As the stock and bond markets went up and down, the allocations to equities and bonds were changing and straying from a 60/40 stock/bond allocation. This became obvious during the sharp sell off of the last few weeks. The current benchmark will constantly rebalance to a 60/40 allocation.
TRADE UPDATE: BOTH MODELS
We are buying 1% of CLX (Clorox) into both the equity and sector model. While CLX is not a sector, it is a special situation which has no ETF equivalent. Going forward we will be flexible in the sector model with individual names if needed to meet our strategic goals.
As noted previously over the next several months, as we go through this market, we will be blending the ETF and Equity Models together.
TRADE UPDATE: EQUITY MODEL
We are buying 1% MRK (Merck) in the equity model today. We are positioning the portfolio to maintain a consistent equity weighting as we will be selling highly leveraged positions during this rally.
March 24, 2020
Trade Update: ETF MODELS
As noted below, we were waiting for the market to pull back a bit before completing the swap from XLRE and XLU to XLK and XLC. The purpose primarily is to reduce the leverage in sectors most susceptible to default risk. There are several REITs which are going to liquidate over the next couple of months which will impact the whole sector.
Increasing weights in portfolios:
XLK to 4% of the portfolio
XLC to 4% of the portfolio.
Trade Update: ETF MODELS
This morning we sold XLRE and XLU. We plan on replacing those positions with additions to XLC and XLK.
We are having problems with the custodian so we will update the portfolios as soon as trades settle.
March 24, 2020
Trade Update: ETF MODELS
This morning we sold XLRE and XLU. We plan on replacing those positions with additions to XLC and XLK.
We are having problems with the custodian so we will update the portfolios as soon as trades settle.
March 23, 2020
Trade Update: ETF & EQUITY MODELS
This morning the Federal Reserve went “ALL IN” with unlimited QE. As we addressed in this weekend’s newsletter, the markets are extremely oversold and a “bear market” rally is highly likely.
We want to focus our attention of sectors which are lesser affected by the “viral impact” to the economy, and the reality the Fed has just unleashed “Pandora’s Box” with their massive interventions.
As such we are taking on a very small exposure in portfolios adding:
2.5% of QQQ
1% of IAU (inflation hedge) (Read market buy/sell report today for parameters on Gold)
Stops are set very tight, but we will add to the holdings if a rally begins to mature over the next few days. Such a rally could get an additional boost from Congress if they can get their stimulus bill passed.
Will update the portfolios as soon as trades settle.
March 19, 2020
Trade Update: ETF & EQUITY MODELS
We have settled the sells of DBLTX and PTIAX in the models this morning.
We bought STIP this morning. More details on why we executed this trade are below.
We also closed out our short-hedge (SH) for now as the markets are grossly oversold.
Also, we are considering putting on a small position in SPY if this consolidation over the last couple of days holds through Friday. What we HAVE NOT had, as of yet, is TWO POSITIVE RETURN days in a row. However, the recent market action has been more constructive in holding recent lows. We may look to add a trading position and build into it if we get follow through.
As the chart below shows, the TIP market now implies that inflation will average +0.16% for the next five years. If inflation is higher on average than 0.16%, STIP should outperform similar maturity Treasury bonds and vice versa if lower. We are in the midst of a short term deflationary bust, but given the massive fiscal and monetary stimulus we think a good majority of the next 5 years will see normal to much higher than normal inflation.
March 18, 2020
Trade Update:
“Too Damn Cheap…”
With the markets in full “margin call” liquidation mode, everything is being sold from bonds, to stocks, to gold, to equities. This is like an Oriental Rug Company – “Everything Must Go.”
With that said there is real value coming into the markets and over the next 30-45 days we are going to start picking through the rubble nibbling on things that are just “too damn cheap.”
We started that process today with a 1/2% position in GDX in the Equity and ETF Portfolios.
Buy 0.50% GDX
NOTE:The ETF PORTFOLIO is going to migrated into the EQUITY MODEL over the next few months. With valuations finally getting cheap, bonds no longer a hedge for portfolios, and dividends escalating sharply, we will want to more selective buying individual companies, increasing holding sizes, and maximizing returns going forward. This makes ETF’s a less “optimal” strategy for portfolios going forward.
Trade Update:
We sold our holdings in DBLTX and PTIAX in the sector and equity funds. With our equity exposure so low at this point, we do not need as big a bond position to hedge our equity positions. Also, with rates so low they provide little coupon interest but significant risk if interest rates rise.
Trades will be posted tomorrow as the securities are mutual funds and will not occur until later tonight.
March 16, 2020
IMPORTANT UPDATE
We have been holding on to some equity exposures in anticipation of a “Fed Bazooka.” Given the markets pre-disposition to rally on liquidity pushes, we didn’t want to get caught on the wrong side of the “trade.”
However, one concern we have had for some time is what if QE doesn’t work? We MAY have that answer.
More importantly, QE doesn’t solve the problem of a global pandemic recession and market shutdown.
As such we have NO IDEA where the bottom is, and we simply do not want to take any additional risk until there is some certainty and clarity in terms of risk and reward. MAYBE IT IS TODAY? We just don’t know.
Most importantly, this morning we broke the long-term bullish trend from the 2009 lows and as such:
We are closing out our core and
Selling 1/2 of our tactical equities.
We are maintaining our bond and short exposures.
We have closed our the Dynamic model entirely at this point and will rebuild that portfolio when the “dust” settles.
Overall, we have been taking profits and reducing risk for quite some time and have a performance gap over the S&P 500. We can allow the S&P to play catch up with us and rebuild our portfolios when there is a clearer view of risk and reward.
Right now, we have no clarity.
I will post the trades up later today once they all settle and we know what our fills are.
Thank you.
March 11, 2020
ALL MODELS
As noted yesterday:
“We are going to change our “CORE” allocations positions and weightings to give us better flexibility with the two portfolios in the future. We are going to increase IVV to 10% of the portfolio and sell both RSP and VYM. This will give us more room to add selective equity and sector exposure while giving us an exact hedge with a SHORT S&P 500 Index.”
This morning we added IVV to portfolios to bring that “CORE” weighting up to a full position.
We have stated for some time that the Fed was likely to extend their Repo facilities and increase the funding. They did that today and the market did not respond.
There is simply too much “bad news” swirling in the headlines and our last support was taken out today. We used the brief rally at the end of the day to liquidate RSP and VYM and reduce our overall core position.
The markets are DEEPLY oversold, as stated in today’s commentary, so, while it may not seem likely at the moment, there is a potential for a fairly sharp one to two day rally. We will short against the core position at that point taking it to market neutral.
We did short against the core holdings in the Dynamic model to limit downside risk as we are at our stop limits for the whole portfolio currently.
March 10, 2020
EQUITY & ETF Models
We are going to change our “CORE” allocations positions and weightings to give us better flexibility with the two portfolios in the future. We are going to increase IVV to 10% of the portfolio and sell both RSP and VYM. This will give us more room to add selective equity and sector exposure while giving us an exact hedge with a SHORT S&P 500 Index.
This will be done opportunistically with the sells occurring on any sustained counter-trend bounce to the 200-dma.
DYNAMIC MODEL
I placed orders for ADBE and CRM below the market opens today and got filled on the selloff earlier today.
Bought 1/2 positions in ADBE and CRM.
March 9, 2020
EQUITY & ETF Models
The impact of the decision by Saudi Arabia to boost production and lower prices to preferred partners, along with Russia not participating in cuts, has created unexpected risk for markets that we can not quantify at the moment.
While markets are oversold on a short-term basis, we used the small bounce from this mornings to sell our “rental trade” for the time being. Once the market bottoms, we will look to reintroduce the trade.
We expect the markets to bounce over the next few days, and we will use that opportunity to most likely raise more cash and short against remaining long positions.
Selling 100% VOOG
DYNAMIC MODEL
Selling 100% of IVE
March 6, 2020
We are giving up on our “beaten up, out of favor, fundamentally strong” energy thesis for the time being. We still like the sector and will come back to it later when a better bottom has formed.
We need to raise cash for the portfolios to be more defensive here, and with Russia failing to join the OPEC+ cut, we have more downside risk in the sector.
We also sold XLY as discretionary is subject to an earnings shortfall with the impact of the virus and the global supply chain impact.
ALL MODELS:
Selling 100% of XOM, AMLP, RDS/A and XLY
March 3, 2020
** UPDATE ** 3-4-2020
TD Ameritrade finally allocated our trades this morning for the equity model. Please review the PORTFOLIO POSITION REPORT today for analysis on why we brought selected positions up to target weights in portfolios.
We have updated the portfolio holdings with the below listed trades.
However, we had a problem with TD Ameritrade today, and some of our trades have not settled into accounts yet, so I am missing cost basis on the equity positions.
I should be able to update them in the morning.
Portfolio Trading Update:
We are doing a lot of rebalancing in portfolios today, so there will be updates through out the day as we rebalance models.
As discussed in the SECTOR BUY/SELL UPDATE we are:
Selling Areas Most Exposed To Corona Virus:
XLF, XLB , and XLI in the ETF Model
JPM, NSC, and MU in the Equity Model
Rebalancing to Target Weights
XLK, XLRE, XLU, and XLV in the ETF Model
AAPL, ABT, AEP, CHCT, CVS, MSFT, PG, and V in the Equity Model
We will update portfolios as all the trades settle from our client accounts so that we have the average cost basis and execution levels.
February 28, 2020
Portfolio Trading Update:
In the EQUITY and ETF PORTFOLIOS, because immediately below, the very oversold condition suggests a short-term bounce is likely so we are reducing some of our hedges and taking in profits.
While TLT proved to provide great protection, but it is very extended and while we like bonds as a hedge, if the impact to the global supply chain is as we suspect, it could be inflationary and way on longer-duration bonds.
We sold GDX as well, because Gold Miners are people intensive and are in countries, primarily, which are more subject to the effects of the Coronavirus. We are keeping our GOLD position which will benefit from reduced supply as well as the potential inflationary impact with respect to the global supply chain. Gold is an insurance policy against reckless central bank policies.
Selling:
TLT
GDX
***Important Market Message
The market is currently extremely stretched to the downside, as shown below, with very negative sentiment. Thursday afternoon saw a flush of sellers, and it looks like we will see a continuation of that this morning. We suspect a rally could begin later into the afternoon to try and defend the 200-dma.
If correct, we will probably get a reflexive rally back to 310 to 315 on SPY, and then we will most likely sell off our trading positions and reduce our equity exposure further.
Importantly, despite the selling, the bull trend is still intact, so while we have triggered some short-term sell signals, it isn’t time to become completely bearish just yet. However, I suspect that time will come in the next few months.
Click to enlarge.
February 28, 2020
***Important Market Message
The market is currently extremely stretched to the downside, as shown below, with very negative sentiment. Thursday afternoon saw a flush of sellers, and it looks like we will see a continuation of that this morning. We suspect a rally could begin later into the afternoon to try and defend the 200-dma.
If correct, we will probably get a reflexive rally back to 310 to 315 on SPY, and then we will most likely sell off our trading positions and reduce our equity exposure further.
Importantly, despite the selling, the bull trend is still intact, so while we have triggered some short-term sell signals, it isn’t time to become completely bearish just yet. However, I suspect that time will come in the next few months.
Click to enlarge.
February 27, 2020
ETF, EQUITY & DYNAMIC PORTFOLIO
As noted into today’s POSITION COMMENTARY report, with energy stocks trading at extreme deviations BELOW their 200-dma, we said we were going to start nibbling into positions in the energy space.
As such we added 0.50% to our current AMLP position which resides in all 3-portfolio. AMLP is 3-standard deviations below its long-term mean with an 11.5% dividend yield currently.
In the EQUITY and DYNAMIC models we added a small 1% position of Royal Dutch Shell (RDS-A) which currently is more than 3-standard deviations oversold and carrying an 8.4% dividend yield.
February 25, 2020
ETF, EQUITY & DYNAMIC PORTFOLIO
This morning in the DYNAMIC PORTFOLIO we closed out of the rest of the SHORT S&P 500 INDEX position and added a 5% trading position in VOOG.
In the ETF and EQUITY PORTFOLIOS we added a 5% trading position in VOOG.
These are “RENTALS” on the S&P 500 for a tradeable bounce. We will likely sell these on this rally over the next couple of days as markets approach resistance and then add back the SH position to hedge our other longs.
This is a tricky market right now, so don’t try and get “cute” with it and take on unnecessary risk.
February 25, 2020
ETF, EQUITY & DYNAMIC PORTFOLIO
With the decline this morning we were stopped out of several positions in both the Equity and Dynamic Portfolios:
DOV
VMC
LVS
Also, with yields dropping rapidly and yield curves inverting, our yield-curve steepening trades have been closed our for now with nice gains.
AGNC
NLY
REM
We are raising cash to limit further downside risk at the current time, but also to position the portfolio for potentially weaker economic growth going forward. The cash raised will be redeployed back into our stronger positions that we have previously taken profits in. We are also looking to reduce our exposure to impacts to global supply chains so we are shifting away from Materials and Industrials to some degree.
There are a lot of moving pieces right now, so nothing is firm yet.
February 24, 2020
DYNAMIC PORTFOLIO (Updated)
Sold 1/2 of the short-hedge position in the account due to the more extreme oversold condition that currently exists. We will likely see a bounce over the next day or two which will let us add the hedge back for the continuation of the correction for now. We were also stopped out of our Pfizer (PFE) position.
EQUITY & ETF PORTFOLIO
As we have addressed over the last couple of weeks, we were close to getting stopped out of small cap, international and emerging market positions. DEM, EFV and SLYV, along with PFE in the Equity model, were stopped out today. These positions were laggards to the portfolio and were underperforming.
Both XOM and AMLP are trading at extreme discounts to fair value as well as deep deviations from the their long-term moving averages. We are going to hold these positions for now and will reconsider our positioning on a rally in the next few days.
February 21, 2020
DYNAMIC PORTFOLIO
We are continuing to work on using opportunistic pullbacks in the market to build out the Dynamic Model Porttfolio.
This morning we put in a limit order to buy the Vanguard S&P 500 Growth Fund (VOOG) at 186.00. The trade was executed late afternoon.
The Dynamic Portfolio carries a long-term “CORE” position of broad market indices which use as a base to build the rest of our exposure off of. It is also the primary position which we hedge against, including our current Short S&P 500 Index fund (SH).
As we get the portfolio built out we will begin to rebalance and adjust weightings in all of our positions.
February 19, 2020
All Fund Data up to date.
February 18, 2020
NOTE: These are mutual fund trades which take some time to settle after the market closes. I will update the portfolio positions as soon as I have the transaction data.
PORTFOLIO TRADING UPDATE: EQUITY & ETF MODELS (FIXED INCOME TRADE)
This morning we swapped half of DBLTX for PTIAX for the Equity and ETF models.
In a 60/40 portfolio, we reduce DBLTX by one-half weight and added and equal amount of PTIAX. We did the trade as an exchange, meaning we bought the same amount we sold. Therefore, total fixed income exposure did not change.
PTIAX has a $2500 minimum, but there are no transaction fees.
Why we did the trade:
PTIAX is conservative, like DBLTX, but provides us with better diversification in our fixed income holdings and a history of outperformance versus both DBLTX and the Barclays Aggregate benchmark. Whereas DBLTX is largely in Agency mortgages, PTIAX has some residential and CMBS holdings but is largely into tax exempt munis. Like DBLTX, PTIAX sees little to no value in corporates at the moment. From an underlying ratings perspective they are both similar. Note the lower rated securities are bonds that have not been re-rated since the financial crisis.
Essentially the swap allows us to diversify into a fund with better performance and strong track record of outperformance in bad fixed income environments.
February 14, 2020
PORTFOLIO TRADING UPDATE: DYNAMIC MODELS
This morning, I took the SHORT S&P 500 (SH) to 10% of the DYNAMIC MODEL.
We are still trying to build this model out and I am hedging a chunk of the portfolio for a short-term corrective action in the market so I can add to existing positions, and add new ones, more opportunistically.
This is simply a hedge to protect newly invested capital and not a “bearish” call on the market.
February 12, 2020
PORTFOLIO TRADING UPDATE: EQUITY / DYNAMIC MODELS
This morning we added a position in both models of Las Vegas Sands (LVS).
In the EQUITY model we SOLD our position in SLYV. It has been underperforming and we needed to make room to add LVS. We are looking at two additional additions to the portfolio currently which will require some further adjustments.
LVS is just triggering a MONTHLY BUY signal which is bullish, and more of the technical aspect are turning bullish as well. as noted in our analysis:
Click To Enlarge
With a 4.5% yield, it adds to our income flow of our portfolio, as well as with the technicals improving the potential for a decent total return.
February 11, 2020
PORTFOLIO TRADING UPDATE: EQUITY / ETF MODELS
With the markets pushing more extreme extensions once again, as discussed in today’s #TechnicallySpeaking,we are beginning to add on some additional hedges. The first step is we are starting to extend our duration in our bond portfolio a bit as a correction will push money into
BUY – TLT @ 144.22
Looking to add further hedges later this week if needed.
February 5, 2020
PORTFOLIO TRADING UPDATE: EQUITY / DYNAMIC MODELS
As noted in ourPOSITION UPDATE REVIEWthis morning, we made a few minor changes to our Equity and Dynamic Portfolios this afternoon. We noted that we previously took profits in some of our most grossly extended positions like AAPL, UNH, UTX and others. As noted at that time, we were expecting a 3-5% correction to work off some of the excess which did occur.
While the markets are still extended there were a few positions that had more substantial pullbacks and offered better entry points. The following purchases were made:
EQUTIY MODEL:
ADDED TO UNH bringing position back to target weight @ 288.125
BUY PFE @ 37.9995
ADDED TO ABBV bringing position to full portfolio weight @ 85.3258
BUY JPM @ 136.6599
ADDED TO AMLP bringing position to full portfolio weight @ 8.22
DYNAMIC MODEL
BUY PFE @ 38.205
BUY UNH @ 289.5271
BUY ABBV @ 85.6144
BUY AMLP @ 8.2101
BUY JPM @ 136.712
February 4, 2020
PORTFOLIO TRADING UPDATE: ETF / DYNAMIC MODELS
As noted in ourSECTOR BUY/SELL REVIEW, we discussed that we took profits yesterday in the ETF Model to reduce our holdings slightly in Utilities & Real Estate.
This morning we added exposure as discussed to XLF and XLV as we work on rebalancing portfolios for risk.
We also continue to build out the new DYNAMIC model which we reduced our market neutral hedge by 1/2 today, and added XLV, XLF and IVV to the portfolio.
ETF MODEL:
Increased XLV back to target weight @ 101.42
Added XLF to 1/2 portfolio weight @ 30.65
DYNAMIC MODEL
Sold 1/2 SH @ 23.52
Added XLF @ 30.65
Added XLV @ 105.02
Added IVV @ 330.325
February 3, 2020
PORTFOLIO TRADING UPDATE: ETF MODELS
As noted in our SECTOR BUY/SELL REVIEW, which will be posted in the morning, we took profits today in the ETF Model to reduce our holdings slightly in Utilities & Real Estate.
The reasoning for taking profits is that over the last couple of weeks interest rates have had a huge move lower which boosted the prices of Utilities and Real Estate which are interest rate sensitive. With both sectors, along with rates, very overbought, we are taking some profits here to be able to rebuild the positions following a correction. We will also look to increase our bond exposure as well.
Sold 1/3 of our position in:
XLU @ $69.133
XLRE @ $39.395
TRIAL USERS
Click the link below for the promotional analysis on the Energy sector.
As noted in our previous post, the market is SO very extended, overbought, and complacent that we needed to take some profits and temporarily reduce equity exposure in both the EQUITY and ETF Portfolios.
As such we have taken profits in the following positions:
As noted at the beginning of the year, we launched the DYNAMIC EQUITY PORTFOLIO with a purchase of 10% of the account value in a large capitalization VALUE fund (IVE).
The S&P is currently more than 2-standard deviations above the 200-dma (shaded blue area).
The “buy signal” (lower panel) is back to levels of extensions normally only seen with short-term tops and corrective actions, particularly when combined with extreme extensions and deviations from long-term means.
Because of this extreme extension we have been unable to complete building out our “core” holdings, until the market reverts some of the overbought condition.
Therefore, given that complacency is high, put/call ratios are at extremes, and the markets are extended and deviated from long-term means, we have taken the portfolio to a “MARKET NEUTRAL” position for now by adding an equal SHORT-S&P 500 position to the model.
BUY: 10% SH – Proshares Short-S&P 500 Index
This will allow us to protect our capital and will provide the opportunity to build out the core S&P 500 position on a market correction. At that point we will remove the short and build out the rest of the portfolio.
As noted previously, the Dynamic Model is an 80/20 portfolio allocation, which is more aggressive than normal, and is a go anywhere, do anything, model. As such we are looking for potentially longer-term investments in “out of favor” areas of the market while still investing in current market trends.
01/03/2020
We are starting the launch of the DYNAMIC EQUITY PORTFOLIO today with a purchase of 10% of the account value in a large capitalization VALUE fund (IVE).
The Dynamic Model is an 80/20 portfolio allocation, which is more aggressive than normal, and is a go anywhere, do anything, model. As such we are looking for potentially longer-term investments in “out of favor” areas of the market while still investing in current market trends.
Our initial purchase is the start of building a “core allocation” which we will eventually “hedge” against. Given the market is extremely overbought currently, we will look to use further pullbacks and corrections to build out the core opportunistically.
12/31/2019
TRIAL SUBSCRIBERS
If you are trial user looking for our special report on the Energy Sector click the link below.
Scroll down to read more about our portfolio recommendations, changes, and trades.
12/31/2019 – PORTFOLIO UPDATE
As mentioned previously we are doing some tax loss harvesting in the Equity Portfolio this morning. (Please read the Portfolio Update Report)
EQUITY Portfolio
Selling:
100% of Boeing (BA) at the open
100% of Wells REIT (WELL) at the open
After these sells are completed we will then look at rebalancing risk in the broader portfolio.
In early January we will look to hedge the our portfolio against a short-term correction.
We will update the transactions once they are filled.
TRIAL SUBSCRIBERS
If you are trial user looking for our special report on the Energy Sector click the link below.
Scroll down to read more about our portfolio recommendations, changes, and trades.
12/16/2019 – PORTFOLIO UPDATE
As noted in our previous portfolio update:
“With the markets back on a monthly “buy” signal, we will likely be added a bit more weight in the days ahead, so we will keep you apprised.”
Given the resolution of the “trade war”, “Brexit,” but primarily because the Federal Reserve is injecting nearly $500 billion in liquidity over the next 6-weeks, we are adding some additional exposures to portfolios. We have discussed in our previous market update, the breakouts occurring in Small-Cap, Emerging and International Markets.
These are trading positions only with VERY TIGHT stop parameters. If the positions continue to perform as expected we will increase holdings accordingly.
EQUITY Portfolio
Selling:
100% of Duke Energy – DUK
Buying:
1% of Small-Cap Value – SLYV
1% of International Value – EFV
1% of Emerging Market Value Dividend – DEM
ETF Portfolio
Buying:
1.5% of Small-Cap Value – SLYV
(Which we are blending with the recent purchase of KGGIX to balance performance short-term)
1.5% of International Value – EFV
1.5% of Emerging Market Value Dividend – DEM
TRIAL SUBSCRIBERS
If you are trial user looking for our special report on the Energy Sector click the link below.
Scroll down to read more about our portfolio recommendations, changes, and trades.
12/12/2019 – PORTFOLIO UPDATE
EQUITY Portfolio
As discussed in previous updates, we took profits in Gold Miners and Gold near the peak of the advance this summer. However, we like the positions as a hedge for our portfolios longer-term against a pickup in volatility and risk. We have added back 1% in each of the positions bringing them back to slightly overweight in the portfolio.
ETF Portfolio
Also, as noted in the sector update on Tuesday, Healthcare (XLV) was just grossly extended with the position up sharply in recent weeks. Given that we had overweighted the sector earlier in the year expecting a pickup in performance, we have now reduced the position back to a normal full weight. (We reduced the total holding from 4% of the portfolio to 3%)
We also add a “starter” position of a small-cap deep value mutual fund (KGGIX) which essentially replicates our previous thesis on the coming rotation to value from growth. (The link below is for Part V – all other previous links are contained therein)
With the markets back on a monthly “buy” signal, we will likely be added a bit more weight in the days ahead, so we will keep you apprised.
PORTFOLIO UPDATE
BOUGHT – 1/2 Position Of AMLP (Alerian MLP)
Over the last couple of weeks we have been discussing picking up some exposure to the energy sector and have been digging around for opportunities. We have identified several E&P companies as well as looking at some MLP’s for both potential price appreciate and yield.
However, the issue with MLP’s are the K-1 issues particularly for IRA accounts. Therefore, we are taking an initial 1/2 position in AMLP which has 1099-tax treatments. We are giving the position a little wider than normal stop-loss of $7.00/share because with the end-of-year tax loss selling season in progress, we could see some downward pressure on the holding short-term. We will add our second 1/2 position on weakness.
If you have not read our thesis on AMLP, please do.
PORTFOLIO UPDATE
Selling 100% of SDS (2x Short S&P 500 index) hedge.
We had expected a 2-5% correction in the market to resolve the overbought and extended condition of the market. That correction occurred on Monday and Tuesday (almost precisely 2%) before “trade deal” headlines begin flooding the airwaves.
For the week, the market will end virtually flat, but that consolidative action was enough to reduce portfolio risk enough to warrant removing the hedges for now. With the end of the year portfolio window dressing coming, it is likely the market will try to move higher over the Christmas holidays.
After taking short-term trading profits out of positions earlier this year we are “tax loss harvesting” the portfolio hedge through the end of the year. We will add the hedge back on as soon as the next signal warrants adding additional protection. For now, we want to let the markets “bullish bias” work in our favor through the holidays.
After all….Santa Claus is coming to town.
TRIAL USERS:
As referenced in our weekly newsletter, here is the referenced report on QE-4:
Click The Image To Read
PORTFOLIO UPDATE
As we are writing for tomorrow’s “Technical Update” – the risk of a short-term correction has hit pretty extreme levels with “Short VIX” positioning now at record levels. With the markets back to extreme OVERBOUGHT on virtually every measure, we have added a SHORT S&P 500 ETF to our portfolios.
This will be removed over the next few weeks as we get the anticipated correction. However, we are also keeping a fairly tight stop on the position just in case the market decides to rocket off higher into year end.
We have recently talked about the rotation from “defense” back to “offense” as QE gained traction in the market. That is occurring so we have reduce WELL from 1.5% of the portfolio to 0.75%.
Also, a reminder (as we are getting emails), we have closed out the Long-Short Portfolio in order to launch a Dynamic Equity Income Model on January 1st. Here was our previous note:
LONG-SHORT PORTFOLIO
We have been wrestling with TD Ameritrade for several months now to get a waiver to allow us to short individual equity positions in an IRA account. We have not been successful.
We are going to terminate this portfolio and relaunch it in January to follow our DYNAMIC GROWTH Portfolio we are launching for our clients. The portfolio, which was conceived from your subscriber requests, is an all-weather portfolio allocation that can buy any asset class, short markets, and take advantage of any opportunity. There is no set allocation mix so weightings can float between equities, commodities, fixed income, and cash as needed to create growth or hedge risk.
We are putting the finishing touches on the model now and will look to launch the portfolio live on January 1st.
October 30, 2019
Portfolio Action Update
Equity Portfolio
As we have been discussing in our portfolio commentaries over the last couple of weeks, we are making some changes to our portfolio.
(Click to Enlarge Charts)
SELLING 100% of YUM Brands (YUM)
As shown in the chart below, Sales have been declining with earnings being supported by a massive share buybacks.
SELLING 100% of Mondelez (MDLZ)
Sales at MDLZ have also been falling with earnings supported by share buybacks. We are taking our profits out the position and looking to reallocate.
REDUCING Apple (AAPL) to take profits heading into earnings. (Risk from China)
After taking 20% in profits in AAPL earlier this year, we are reducing once again due to stagnant revenue growth and EPS supported by share buybacks.
BUY Full Position of Kraft Heinz (KHC)
KHC is a “SPECULATIVE” trade based on earnings tomorrow. There is a HIGH PROBABILITY we will be stopped out. Therefore, DO NOT enter this trade if you are not keen on a potential short-term loss. As noted in our Portfolio Postion review:
Last week we talked about our speculative turnaround story in KHC. We still think that is the case and we will add a “trading position” to the portfolio.
With a 6% yield, and the stock turning higher, we are liking the position more.
This is a speculative trade set up with a tight stop at recent lows.
October 22, 2019
Portfolio Action Update
Equity Portfolio
Read yesterday’s note for explanation on actions we are taking currently and yesterday’s trades.
Today, we are adding:
1/2 position of ABBV
A full position of AMZN
We are also looking to rebalance and add exposure to the ETF model as well.
LONG-SHORT PORTFOLIO
We have been wrestling with TD Ameritrade for several months now to get a waiver to allow us to short individual equity positions in an IRA account. We have not been successful.
We are going to terminate this portfolio and relaunch it in January to follow our DYNAMIC GROWTH Portfolio we are launching for our clients. The portfolio, which was conceived from your subscriber requests, is an all-weather portfolio allocation that can buy any asset class, short markets, and take advantage of any opportunity. There is no set allocation mix so weightings can float between equities, commodities, fixed income, and cash as needed to create growth or hedge risk.
We are putting the finishing touches on the model now and will look to launch the portfolio live on January 1st.
October 21, 2019
Portfolio Action Update
Equity Portfolio
As noted in the last update we took profits from positions that were grossly extended and showing signs of correction. The second was to add to, or add new, positions in the portfolio to keep current allocations levels.
Today, we took some initial actions in the Equity Portfolio and added:
1/2 position of XOM which brings our position up to a full weight.
A full position of MU
We have 3-other positions slated to add over the coming days and will do so opportunistically.
We are also looking to rebalance and add exposure to the ETF model as well.
October 15,2019
Portfolio Action Update
Equity and ETF Portfolios
Over the last several weeks we have been discussing the need to take profits out of positions (for a third time this year) as prices had just gotten way to extended. Furthermore, we appear to be in the early stages of a rotation from more “safe haven” investments back into “risk on” as the Federal Reserve begins to once again be expanding the balance sheet.
We are making the adjustments to the EQUITY portfolio in 2-steps.
The first step is taking profits from positions that are grossly extended and showing signs of correction. The second step will be adding to, or adding new, positions in the portfolio to keep current allocations levels.
Today we have taken profits in the following positions:
AEP
CHCT
DUK
GDX
IAU
PG
VMC
YUM
In the ETF portfolio we are reducing IAU by 50%.
We will look to increase exposure to either the core or sectors weightings over the next couple of days if necessary.
October 11, 2019
Equity Long/Short Portfolio Trade Update
Buy 100 shares of TBX and Buy 100 shares of SHY
As discussed in our just released RIA Pro article –Non-QE QE and How To Trade it, we believe the yield curve will steepen. Today the Fed announced that they will buy $60 billion per month of Treasury Bills for at least six months.
The trade above in the RIA Pro portfolio is slightly different than that which we recommended in the article. Because of difficulty in shorting IEF, we instead purchased TBX, the inverse ETF of IEF. Due to this change we had to adjust the ratio of SHY and TBX. Please read the article for more of a discussion on the trade and the details.
October 9, 2019
Equity Portfolio Trade Update
Sell 1/2 ABT
As noted in today’s POSITION UPDATE REPORT our holding in Abbott Laboratories broke support and triggered our adjusted stop loss.
After taking profits in the position previously, we have sold 1/2 of the remaining position.
Over the next couple of days, as we see how things develop with the “trade negotiations,” and the Fed, we are going to rebalance our portfolio holdings accordingly by trimming profits and adjusting the overall risk profile.
We are optimistic some form of a trade deal will be completed and the markets will likely rally into the end of the year. However, until we have some clarity, it makes sense to hedge risk currently.
Remember, it is always easier to add money to a rising market versus trying to figure out how to make up losses.
September 27, 2019
** RIA Pro Web Site Upgrades **
In the Portfolio Tab you will now find a gold plus sign to the left of the ticker. When you click on it you will access key information about the company.
Within this menu is a listing of past and future dividend and earnings dates and data for the company. To see this information for your entire portfolio you can click Dividend at the top of the page to the right of the large performance graph. This will display dividend and earnings information for your entire portfolio.
In the Research menu you will now find global dividend and earnings calendars. Clicking it will display a list of companies with dividends or earnings for the specific date.
These upgrades were based on comments from subscribers. Please keep the great ideas coming.
September 26, 2019
** Trade Update **
BUY – Boeing (BA)
EQUITY PORTFOLIO
Yesterday, I noted that we added the 2nd half of a position to BA to the LONG-SHORT PORTFOLIO as discussed in our Portfolio Position Update report.
We completed the process of adding to 2nd half of the BA position to our EQUITY PORTFOLIOS today.
Models have been updated.
September 25, 2019
** Trade Update **
EQUITY/ETF Portfolios
We had previously added a short-term trading position in VXX as a hedge against the Federal Reserve announcement on rates.
These positions, due to the optionality inside of the ETF, can NOT be held for long-periods of time as they “bleed” relative to the performance of the underlying index due to the “decay of premium” in the underlying options.
With the market oversold short-term, and sitting on support, we are closing out the position with a slight gain. We will look for the next opportunity to hedge which will be coming around mid-month with the “trade negotiations.”
EQUITY LONG-SHORT
We added the 2nd half of a position to BA today as discussed in our Portfolio Position Update report.
September 24, 2019
** Trade Update **
ETF Portfolios
We have been talking for a while about the really overbought conditions of “defensive” sectors of XLP, XLRE, and XLU.
We have been carrying an overweight position in XLP since earlier this year. Today we reduced that overweight to portfolio weight to take in some gains.
September 17, 2019
** Trade Update **
Equity and ETF Portfolios
We are starting to add a hedge to our portfolios heading into the Fed meeting tomorrow and the “trade negotiations” in mid-October.
We added our 1st-stage of VXX to both models and will continue to build into the position as volatility drops further. Markets are extremely overbought short-term and a correction is pending in the next few weeks.
This is a short-term hedge which will maintain both a tight stop as we build into it, and will be sold on a spike in volatility.
September 12, 2019
** Trade Update **
Equity Long-Short Portfolio
We closed out our 2x S&P 500 trading position after adding to the position twice in recent weeks. As noted previously, the trade was put on after the S&P 500 broke out of consolidation and above the 50-dma which gave us a trade target of the July highs. We reached that target this morning and with the market back to extreme overbought we have closed the trade and taken in profits. We are now looking for an opportunity to potentially short against our remaining long “core” S&P 500 positions.
The chart below shows the overbought short-term condition.
Equity Portfolio
In the core equity portfolio we have been discussing needing an opportunity to increase duration in our bond holding and add to our gold positions. The announcement by the ECB to go deeper into #negative #rate territory and restart QE was the point we needed.
Added to the 2x S&P 500 holding in the EQUITY LONG-SHORT Portfolio for a one or two trade trade opportunity. Market approaching overbought so rally is likely to fail at all-time highs.
September 6, 2019
NEW SITE FEATURES
RIA PRO portfolios are now compared to an equal benchmark of S&P 500 and Fixed Income which more appropriately represents the risk management features of the portfolio.
Click to Enlarge Image
We have also added a screen for DIVIDEND YIELD.
Click Images To Enlarge
You can screen for high dividend yielding stocks and then sort by yield We have included our ranking system to help sort out the good from the bad.
September 5, 2019
Trading Alert:
With breakout above the 50-dma and the trading channel we have been in over the past month we have added 1/2 of a trading position to the EQUITY LONG-SHORT Portfolio. We will add a second half-position in the next day or so if the breakout holds.
In the ETF Portfolio we added to our existing exposures of XLC and XLY bringing both of those positions up to target weights.
August 28, 2019
As discussed in this morningsSELECTED PORTFOLIO POSITION REVIEWthere are several positions currently under scrutiny for liquidation as market risks rise relative to economic, technical and fundamental outlooks. The ongoing trade war is wearing on profitability as well as the inversion of the yield curve suggesting something more serious damage is occurring in the economy.
As such our first actions in this regard was the liquidation of our financial positions as the inversion of the yield curve, along with the Fed cutting rates, negatively impacts bank profitability. Also, credit risk is rising which also makes banks more vulnerable.
Equity Model – Sell JPM
ETF Model – Sell XLF (FNCL for RIA Advisor Clients)
Portfolio models have been updated.
August 23, 2019
President Trump ordered companies in the United States to look for an alternative to doing business with China and warned that he would further retaliate.
China had threatened new tariffs on $75 billion worth of American goods in an escalation of the trade dispute between the world’s two largest economies.
After Powell’s closely watched speech in Jackson Hole, Trump tweeted, “As usual, the Fed did NOTHING!”
After China announced more import tariffs on U.S. goods early Friday, Trump said he would respond Friday afternoon. The president also asked “who is our bigger enemy,” Powell or Chinese President Xi Jinping.
With that type of rhetoric flying around, it is impossible to trade the market at this moment.
We closed out our remain portion of the 2x S&P 500 long and will wait for things to settle down a bit and see where next supports are.
August 22, 2019
NO LONG-SHORT LIST TODAY
With the Jackson Hole Conference starting today, there is too much risk to be short in the market currently.
As noted yesterday, we have sold into this rally and reduced our 2x SP500 position. We are maintaining our core S&P 500 positions as the bias is currently bullish. The support that has been building around the recent lows is positive and a break above the 50-dma could lead to a retest of previous highs.
With the volatility seen in just the past two weeks, it is too difficult to trade short positions without being “whipsawed” out of the holdings.
Trading Rule:
When you are “unsure” about the best course of action, the best course of action is to “do nothing.”
We will wait for a clearer picture.
August 21, 2019
** UPDATE **
EQUITY LONG SHORT PORTFOLIO:
We sold another 25% of the 2x S&P 500 position that we added for the bounce last Thursday. This leaves us with 1/2 of the original position. With the market still contained below resistance, and working off the oversold condition, there is probably not much more upside to the trad currently. However, IF we get a break above the 50-dma, then a rally back to highs is possible.
Comments from the FOMC minutes or the Jackson Hole summit which tilts towards more rate cuts or QE could push asset prices above resistance.
August 19, 2019
** UPDATE **
EQUITY PORTFOLIO:
We have been discussing for a while that we would be eliminating PPL from the portfolio, but we were waiting to find a suitable replacement. While we have a couple of candidates to add to the portfolio, we decided to go ahead and sell PPL and use the proceeds to add to AGNC and JNJ.
We are continuing to leg into our Agency positions which will benefit when the yield curve starts to steepen as the Fed cuts rates and implements QE. Today, the White House starting applying pressure to accomplish this goal. We are saving some powder momentarily add to NLY as the steepner becomes more evident.
We are adding to JNJ as we feel much of the legal issues surrounding “talc” are likely embedded into the stock price. We are increasing our holdings slightly given the recent pullback to support.
EQUITY LONG SHORT PORTFOLIO:
We sold 25% of the 2x S&P 500 position that we added for the bounce last Thursday. With the market not yet back to “overbought,” we will continue to monitor and sell more on the approach to the 50-dma.
August 15, 2019
** UPDATE**
EQUITY LONG SHORT PORTFOLIO:
I added a 2x S&P 500 position to the Long-Short portfolio for an “oversold trade” and a bounce into the end of the week. We will re-evaluate the holding tomorrow.
____________________________
We have released a SPECIAL REPORT covering the S&P 500 index on a daily, weekly & monthly basis to weigh the possibilities and probabilities of what happens next, the “yield curve,” and why the inversion was “no surprise.”
August 14, 2019
**UPDATE**
ETF Portfolio Change
This morning we sold XLE as it violated our stop loss levels. At the moment we are being cautious and replacing it with short term treasuries (BIL).
The portfolio has been updated.
We have also implemented a new ALERT SYSTEM which will send an email to all subscribers when we make changes to the RIA PRO Portfolios. See below:
CLICK TO ENLARGE
August 13, 2019
ETF Portfolio Change
With Trump caving to corporate pressure (Christmas shopping season right around the corner), and suspending tariffs on technology and apparel goods, we are tweaking our exposures in our portfolios. We started with the ETF model today, and are reviewing the EQUITY model for changes as well.
Today, we took profits in XLU as the sector was grossly extended. We reduced XLF as rate cuts by the Fed will reduce their future net margin interest.
We added to our existing Technology position (XLK) and added a 1/2 position in Communications (XLC)
I will address the reasoning in more details in our blogs and newsletters over the next couple of days.
August 12, 2019
Today, we made a small adjustment to the bond side of the portfolios by swapping the Treasury Floating Rate Fund (TFLO) for a bit longer duration Treasury bond fund (SHY). Our expectation is the Fed will cut rates again in September, which will suppress the short-end of the curve faster than the long end. By increasing duration a bit, we can add some incremental returns to the portfolio without taking on additional credit risk.
If we get a pullback in bond prices in the next couple of months, which is very high probability, we will increase duration further in the portfolio. Credit quality is important at this late stage of the investment cycle, so maintaining a high level of credit quality is very important to capital preservation in the months ahead.
August 9, 2019
Yesterday, as the market opened up fairly sharply, we temporarily closed out the 2x S&P 500 short position to allow the long-side of the portfolio to gain ground.
If today closes below the 50-dma we will begin looking for an opportunity to reinstate the short-position.
August 2, 2019
Not surprisingly, following the addition of new tariffs on China, something we had previously predicted would be the case, the market turned ugly over the past few days.
We were stopped out of NVDA and CRM this morning with breaks below support.
We will probably look to put these trades back on heading into earnings for both companies, but there is simply too much uncertainty at the moment regarding the war breaking out between the White House and the Federal Reserve.
We continue to carry our 2x S&P 500 short but will look to close that trade out as well as the market approaches an oversold condition.
August 1, 2019
** EMN stopped out at $74.75 today. Position has been closed.**
NO LONG-SHORT IDEA LIST Today
Yesterday, the Fed cut rates a quarter point and, as noted in our daily commentary, it was the suggesting of a “mid-cycle” cut which sent stocks reeling.
Given this turmoil, it is too risky to take on additional long-short bets at the moment until we can see how this is going to play out.
As noted, we sold our long GOOG position following earnings. We remain long in our 2x S&P 500 short fund to hedge our long S&P positions.
We are close to being stopped out of our remaining trading positions. However, as noted, we didn’t want to sucked in by the announcement turmoil yesterday, so we are going to wait and see how our positions trade over the next 24-48 hours.
NVDA
CRM
EMN
We will update you accordingly.
July 25, 2019
Following last week’s LONG-SHORT IDEA list, we bought 4-positions long for trading:a CRM, NVDA, EMN and GOOG.
This morning we sold our position in GOOG this morning following their earnings announcement with an average price of $ 1247.84.
Trading lesson RE-learned:
I knew better than to sell at the open this morning, but I did it because I was concerned that with AMZN’s miss, it might drag prices lower early. We got an “okay” price at the open but if I would have waited for the “robots” to finish their opening “buying,” I could have done a bit better on the trade.
This is what happens when you let emotions dictate your trading. Unfortunately, that is the lesson that must be re-learned from time to time.
NVDA is holding ground.
CRM is up slightly (waiting on earnings)
EMN is close to being stopped out.
We are still holding a small 2x-short S&P 500 index in the portfolio as a hedge going into August/September seasonal weakness.
July 24, 2019
On Monday we noted that we were taking profits in positions that had become grossly extended in the EQUITY portfolio.
Yesterday, we took similar actions in the ETF model and sold 10% of our over-weight defensive positions:
Sold XLU @ 59.94
Sold XLP @ 59.98
Sold XLF @ 28.21
This raise our cash position slightly and we are maintaining our other hedges accordingly for now.
“Equity Model: No changes this past week. We are looking to taking profits across the breadth of our portfolio as we are currently sporting gains of 20-40% in many positions just since the beginning of the year. We have already taken profits once back in May, and taking profits a second time will allow us to remove our stop-loss levels for now and look for deep corrections to rebuild holdings.”
This morning, that action was taken and we took profits on 10% of the following 11 Equity model stocks. All of these had >20% gains.
CHCT – Sold 3 shares @ 40.2559
COST – Sold 1 share @ 281.385
DOV – Sold 2 shares @ 98.2807
MDLZ – Sold 2 shares @ 54.7749
V – Sold 1 share @ 179.5506
GDX – Sold 9 shares @ 28.0965
VMC – Sold 1 share @ 138.7877
NSC – Sold 1 share @ 196.65
MSFT – Sold 1 share @ 137.5511
ABT – Sold 3 shares @ 87.68
PG – Sold 1 share @ 115.26
This is the SECOND round of profit taking we have done this year after a similar action was taken back on April 30th.
July 19, 2019
in yesterday’s commentary we noted that we were adding to our Long-Short portfolio:
A small 2x S&P 500 short position to hedge our core long positions against a retracement over the next few weeks. We will remove the short if the market is able to regain its footing and move higher, or the market sells off and reaches oversold conditions.
We sold EFA and EEM at the open and closed out our international positions.
We are also adding two trading positions from our Long-Short list – CRM and GOOG for a trade heading into earnings.
The Equity Long-Short portfolio positions have now all been updated with cost basis.
We are reviewing the 60/40 Equity Portfolio today and will begin taking profits out of our biggest gainers.
We did this back at the beginning of May, and now with many of these positions up 20% or more since the beginning of the year, we are going to lock in more of gains and wait for a correction to add back exposure at cheaper levels.
We will keep you apprised as we take actions.
July 18, 2019
This morning we are adding a small 2x S&P 500 short position to the trading portfolio to hedge our core long positions against a retracement over the next few weeks. We will remove the short if the market is able to regain its footing and move higher, or the market sells off and reaches oversold conditions.
We are also selling EFA and EEM at the open and closing out our international positions which have failed to gain any traction following the G-20 meeting and more “dovish” positioning by the ECB.
We are also adding two trading positions from our Long-Short list today – CRM and GOOG for a trade heading into earnings. Both are on the cusp of either a breakout or a breakdown, so we are running with very tight stops.
I will update the portfolio model later today once trades have settled.
July 3, 2019
Yesterday, we added a full position (1.50%) of WELL to the RIA Equity Portfolio. We also added a full position (2.92%) of REM to the ETF portfolio. REM is an ETF similar in nature to NLY and AGNC, which we purchased last week.
We have held this position previously and were stopped out. However, after a long basing period, and better than expected results from Walgreens (WBA) there is a reasonable trade set up for our longer-term Equity Portfolio.
Yesterday, we added a full position of CVS to the RIA Equity Portfolio at $54.365. However, we are also carrying a very tight trailing stop at the recent lows at $51.00.
June 18, 2019
We just published Profiting From a Steepening Yield Curve which further explains our rationale for buying AGNC and NLY in the equity portfolios. To read the article click the link below.
June 12, 2019
Portfolio Update.
EQUITY and EQUITY LONG-SHORT Model Portfolios
After taking profits at the beginning of May in a majority of our equity holdings and shifting to more defensive positioning in the ETF portfolio there hasn’t been much to do.
Today, we took some actions.
In our weekly MAJOR MARKET REVIEW we recommended taking a position in SPY with a sell target of 290. With that target hit on Monday we sold half of our positioning in the LONG-SHORT portfolio of RSP, IVV and VYM.
We will look to add back to those positions on the next opportunity.
MU continues to be our “problem child” in our portfolio. It simply isn’t performing and while it recently held support the risk/reward simply doesn’t work right now.
With a P/E of 3x, the company is simply CHEAP.
We are giving MU a bit of room, but not much, and we are very close to selling the position for now and putting it back on our watch list.
Stop-loss is set at 32.50.
The breakdown in MU today was enough to trigger our sell, so we closed out the position.
BUT, we also added 1/2 of two new positions in the mortgage sector: NLY and AGNC.
We have a specific report on this trade coming out next week.
However, our belief is that as the recession approaches we will see the yield curve steepen markedly as the short-end of the curve collapses faster than the long-end. A “bullish steepner” is beneficial for these companies so we are beginning to take on positioning to plan for that eventuality.
In the mean time, both NLY and AGNC yield healthy dividends of 13.3 pct and 12.9 pct respectively.
We will update this positioning and the reasoning for it in the upcoming report. Stay tuned.
May 28, 2019
Portfolio Update.
EQUITY and EQUITY LONG-SHORT Model Portfolios
When we originally launched the Equity Trading Portfolio we launched it as a pure Equity/Fixed Portfolio. However, within our client accounts at RIA Advisors, our equity portfolios carrya core holding of the S&P 500 which is the base we build the rest of the portfolio off of. This “core” provides a base relative to the market which then allows us to select specific equities to overweight and underweight specific areas of the market to create “alpha” over the market.
We had been looking for a correction to add the core to the equity portfolio and the recent pullback, while early, is providing the entry point. The core is comprised of 1/3 S&P 500, 1/3 S&P Equal Weight, and 1/3 Dividend Yield. This blend gives us relative performance to the S&P 500 with a bit of a defensive tilt with higher yield.
We added 1/3rd of each position on May 22nd and added again to those positions on the recent weakness.
1.5% RSP @103.62
1.5% VYM @ 85.39
1.5% IVV @ 285.02
We will continue this process into the summer until the core is complete. Looking forward, this core can both be added to, and shorted against, as needed to hedge performance.
We also added the beginnings of the core position to the Long/Short portfolio as well which, now that we can track short positions at RIA PRO, we will begin fully building out this summer from our weekly Long/Short Idea List.
May 23, 2019
Portfolio Update.
ETF Model Portfolio
We recently reduced equity exposure in the ETF portfolio by selling EEM, and cutting our XLB, XLI, and XLY exposures in half. This took our target equity weighting below our model allocation levels currently.
As noted in our newsletter over the last couple of weeks, we are seeing the early signs of a defensive rotation in equities due to the resurgence of the trade war. Therefore, we are moving our allocations accordingly to participate with the rotation.
We are adding:
1.5% to XLRE
1% to XLU
1% to XLP
After recently lengthening duration in our bond portfolios, we will look for a short-term reversal in rates, which will coincide with a counter-trend market bounce, to add further to our position in IEF.
May 22, 2014
Portfolio Update.
EQUITY and EQUITY TRADING Portfolios
When we originally launched the Equity Trading Portfolio we launched it as a pure Equity/Fixed Portfolio. However, within our client accounts at RIA Advisors, our equity portfolios carry a core holding of the S&P 500 which is the base we build the rest of the portfolio off of. This “core” provides a base relative to the market which then allows us to select specific equities to overweight and underweight specific areas of the market to create “alpha” over the market.
We had been looking for a correction to add the core to the equity portfolio and the recent pullback, while early, is providing the entry point. The core is comprised of 1/3 S&P 500, 1/3 S&P Equal Weight, and 1/3 Dividend Yield. This blend gives us relative performance to the S&P 500 with a bit of a defensive tilt with higher yield.
We added 1/3rd of each position today and will build into the core on further weakness throughout the summer. Looking forward, this core can both be added to, and shorted against, as needed to hedge performance.
We also added the beginnings of the core position to the Long/Short portfolio as well which, now that we can track short positions at RIA PRO, we will begin fully building out this summer from our weekly Long/Short Idea List.
May 14, 2014
Portfolio Update.
ETF Portfolio
Continuing from yesterday’s discussion on the impact of “trade wars” on various sectors has us beginning to reposition out of some the areas most susceptible to tariffs. Yesterday, we close out our position in Emerging Markets, and sold 1/2 of our position in Basic Materials.
Today, on the bounce as laid out yesterday, we sold half of our position in XLI (industrials) and XLY (consumer discretionary) and added one-half position in XLRE (real estate) which should be defensive with lower interest rates.
May 13, 2019
Portfolio update:
Equity Long-Short:
On Friday, we put on a small 2x S&P 500 trade for a market bounce. However, over the weekend President Trump and Xi went to war with each other completely tripping up expectations of the market. As a consequence, we closed the position out at the open for a small loss.
ETF Portfolio
Trade wars don’t play well with Emerging Markets, Basic Materials, and Industrials. We are moving a little slowly here after already taking profits a couple of weeks ago, however, we closed out our small position in EEM and half of our position in XLB. On a bounce in the market, we will close out half of our position in XLI and look to add to IAU and/or GDX.
May 10 2019
After 5-days of selling the market is short-term oversold. I put on a 5% SPY trading position in the trading account this morning for a bounce.
Buy 5% position in SSO – filled at open at 119.63.
May 9 2019
As noted in Wednesday’s portfolio position review, the majority of our positions have held up fine this week, although we do have a couple on the “high alert” list.
We have been talking about taking profits a good bit lately due to the overly extended nature of the market. When a market becomes over bought, extended and bullish there is always some issue which leads to a reversion of that positioning. This week it was the return of “Tariff Man.”
Because of the uncertainty coming out of Washington, we have remained on hold this week. The problem when dealing with the White House is the volatility caused by his “tweets.” The current sell off was sparked by his tweet on Sunday threatening additional tariffs on Friday. However, this weekend you could well see a tweet saying he and President Xi had a very good meeting and tariffs are being postponed for now. Such would lead to a market surge on Monday.
As such, we are sitting on our hands at the moment and closely watching our positioning. We are still overweight cash, bonds and gold, relative to equities, so our guard is up. Once we have a resolution on Friday, we will get back to work whichever way it goes.
This is also the reason there is NO LONG-SHORT LIST today. No matter what longs or shorts I pick, the decision from “Tariff Man” on Friday could change everything with a tweet.
A review of the reasoning behind our profit taking last week and what we are looking out for next.
April 30, 2019
PORTFOLIO UPDATE
Over the last couple of weeks, we have been discussing the incessant rise in the market and the need to trim profits and rebalance risk in some of our holdings particularly after such large gains in some of the positions since the beginning of the year. Some of the proceeds we took we then added to Health care due to the valuation opportunity that exists currently.
Sold 20% of AAPL @ 200.5446
Added to ABT @ 78.6536
Sold 10% of CMCSA @ 43.378
Sold 10% of COST @ 244.3952
Sold 10% of DOV @ 97.254
Sold 10% of YUM @ 103.97
Added to HCA @ 128.49
Sold 10% of MDLZ @ 50.545
Sold 10% of PG @ 105.635
Sold 10% of MSFT @ 130.205
Sold 10% of NSC @ 201.4858
Added to UNH @ 236.6287
Sold 10% of UTX @ 141.755
Sold 10% of V @ 165.4572
Sold 10% of VMC @ 125.3312
April 26, 2019
PORTFOLIO UPDATE
Following both disappointing earnings from Exxon Mobil and President Trump’s tweet that he called OPEC and demanded lower gas prices, how that isn’t a minipulation of markets mind you, we made the following sells:
Sold 1/2 of our position of Exxon Mobil (XOM) in the EQUITY Model
Sold 100% of Valero Energy (VLO) in the EQUITY LONG-SHORT Model
Yesterday we released Value Your Wealth – Part One Introduction. This series of RIA Pro articles will deeply explore value and growth strategies. Some of our ideas for future articles are included in this introduction article.
Over the last ten years a performance gap between growth and value has occurred on a scale only seen leading up to the 2001 tech wreck and the Great Depression. We believe this historic anomaly has important implications for investors when this market and economic cycle finally turn. This series of articles will provide you a road map to investing and preserving wealth in what we believe will be a difficult environment for most investors in the future.
April 25, 2019
This morning 3M (MMM) reported earnings which missed markedly. Outlook was poor and they cut 2000 jobs. This, combined with Caterpillars (CAT) yesterday continues to suggest economic growth may be weaker than currently reported. Combined with a strong dollar, the knock off effects in the coming quarters may be persistent.
We closed out MMM at the open this morning at a cost of $ 195.6401
The Equity Portfolio has been updated for the sale.
April 24, 2019
*** Update: We got lucky and sold GS this morning at the open at 203 which protected our gains in the EQUITY TRADING account. VLO is not working well, and we will likely trim it out in the next day or so if it doesn’t perk up. Currently, this account is mostly cash as a majority of positions are grossly extended to the upside. However, we do not have a good setup to short the market either with bullish sentiment running to extremes. So, we will hold cash until an opportunity presents itself.
As noted yesterday, we took profits in XLK and added to our holdings in XLV. This is something we discussed in our weekly sector updates. With the Healthcare sector beaten down by political rhetoric, and with strong earnings, there is some value in the sector. Technology is extremely extended, so simply just taking some profits for now.
We are going to be taking some similar actions in the EQUITY model as well. Review the Position Review for some of the areas we are looking at specifically.
April 23, 2019
We are working on taking profits in XLP, XLK, and XLY in the ETF Model and adding to XLV as we continue to roll into earnings season. No changes needed at the moment in the EQUITY Model.
In the meantime, catch up on your reading: (Click Image To Read)
April 18, 2019
I have been traveling this week, so I was unable to post the Portfolio Position Review yesterday. Since tomorrow is “Good Friday,” and the markets are closed, I am going to postpone the Long-Short Idea List until next week as “crazy” stuff can happen over a long holiday weekend.
**Trading Update: With the market opening higher this morning on the back of JPM’s earnings (which we own long in the Equity Model) and surge in China Bank Credit, we are closing out our short hedge. We are looking for additional trading longs to add to the Equity Trading Long/Short account but most positions are egregiously extended at the moment.
If you are holding junk/high yield corporate bonds (rated below BBB-) or associated ETFs (HYG or JNK for example) we suggest reading our latest article on what to expect from junk bonds if the current economic cycle is coming to a conclusion. Click below for the article.
Both J. Brett Freeze from Global Technical Analysis and Erik Lytikainen from Viking Analytics are both predicting a large move in the S&P 500 over the next week. This move could be UP or DOWN, but the bias is most likely to the downside.
Therefore we have hedged our portfolio with a Short S&P 500 position (SDS).
If the market breaks to the upside we will close it out and add to our longs positions.
April 9, 2019
No trades for today as we await a very heavy Wednesday of Fed speak and FOMC minutes.
As I noted on Tuesday, we were working on the rebalance of the Equity 60/40 portfolio. That process is now complete and the complete list of transactions is listed below. We reduced positions that had grown well beyond portfolio weights and added to underweight positions. We did NOT add to Boeing (BA) at this time as we are waiting for both earnings announcements and further reports on ongoing investigations.
Click To Enlarge For Readability
We are also reviewing the ETF 60/40 Model for rebalancing as well and will likely have an announcement on that by next week.
We have recently added the ability to include SHORT POSITIONS in the RIA PRO Equity Long-Short portfolio. We are rebuilding our model currently to start implementing the trades we discuss on Thursday’s Long-Short Idea List
(Note: The Long-Short Idea List is on hiatus today as we work through this process.
Note 2: We will be rolling out the ability to add short-positions in all user portfolios in the next couple of weeks along with a “live” version of the 401k Plan Manager.)
April 2, 2019
Slow News Day – Catch Up On Your Reading
April 1, 2019
All dividends and interest for March have been added to the cash balances of all three portfolios.
We are working on doing a system wide rebalance on all accounts this week for the quarter and ahead of the start of earnings season.
We will provide an update on all activity when the rebalance process is complete.
Transports violated their stop loss and need to be sold. Watch Financials as they are close to their stop-loss as well.
Market being driven by a narrowing participation.
We have reorganized the menu items to make them more intuitive in the research and portfolio construction process.
START – Catch up on daily portfolio alerts, commentary and blogs.
MACRO – An high level overview of what’s moving in markets and sectors.
IDEAS – Drilling down into markets and sectors to find out whats working and what’s not.
RESEARCH – Found an idea – research it with charts, analyst reviews, etc.
PORTFOLIO – Add it to your portfolio or watch list.
NEW PORTFOLIO FEATURE: SELL SHORT
In our Equity Long-Short portfolio we have only been able to buy ETF’s which short the market as the mechanics in the portfolio tool did not allow for entering SHORT positions.
That has now been resolved.
In your portfolio, you can now SELL SHORT to open a new position and BUY TO COVER to close it out.
MAJOR MARKET BUY/SELL REVIEW is now available
ICYMI – REAL INVESTMENT REPORT
March 22, 2019
Equity Long-Short Portfolio
** Update: Sold remaining 1/2 of 2x Short S&P 500 position today at $ 33.6728
March 20, 2019
Equity Long-Short Portfolio
** Update: Sold 1/2 of 2x Short S&P 500 position pre-Fed announcement at $ 33.685
Equity Portfolio
** Update: FDX sold at $ 172
** Update: Bought 1/2 position of Micron Technologies (MU) at $ 40.49 before earnings. Stop-loss is any downside break due to missed/poor earnings.
Selling Federal Express (FDX)
As noted in today’s PORTFOLIO POSITION REVIEW, below, we are selling Federal Express after a second dismal quarterly earnings report and forecast. In our management process, we can forgive a one quarter miss, but two quarters tends to represent a bigger issue for the company. We will come back to FDX later when things begin to show signs of improvement.
Snapshot:
FedEx Corp. (FDX) reported fiscal third-quarter earnings of $739 million.
On a per-share basis, profit was $2.80. Earnings, adjusted for non-recurring costs, were $ 3.03 per share.
The results missed Wall Street expectations. The average estimate was for earnings of $ 3.10 per share.
Revenue was $ 17.01 billion in the period, short of forecasts for $ 17.64 billion.
The short-fall in EPS was despite continued share count reduction which is problematic.
With the market entering into the quarterly “blackout period” for stock buybacks, and with options expiration behind us, there is a decent probability of a short-term pullback to support given the short-term overbought conditions.
Given that setup, we bought a 2X S&P 500 inverse position (SDS) in the EQUITY LONG/SHORT portfolio to both hedge our Boeing (BA) trade and take advantage of a short-term correction through the end of the month.
Tomorrow is QUADRUPLE witching as all options contracts for March expire simultaneously. This always creates volatility in the market and some of the recent runup in equities may be linked to impending option rolls.
Therefore, we have closed our recent 2X S&P 500 position until we get through tomorrow because leveraged funds are impacted by optionality. We will add the position back on a retest of support.
Also, as noted in today’s commentary, Erik Lytikainen has been nailing the oil market for the last 6-months. His analysis suggests a roughly 2 dollar drop in oil prices tomorrow during options rolls. We added a ONE DAY short trade on oil prices (SCO) which will be closed out tomorrow by the end of the day.
_____________
Note: I got waylaid on a couple of big projects yesterday and was unable to get the LONG-SHORT IDEA LIST generated. I will try and get that published later today. My apologies for the delay.
With the pullback and successful test of the 200-dma we add some exposures to our portfolio.
We have been light on financials so we added a starter position in JP Morgan (JPM) which compliments our current holding in Visa (V)
We also added a fundamental cheap utility company PPL Corporation (PPL) which trades at 12x earnings and a 23% profit margin.
After a series of negative reports and a vast majority of Wall Street analysts now negative on Apple (AAPL) we added 1/2 position as a trade and will look to build that out heading into their earnings report which will likely surprise to the upside. Risk/reward decent in the position currently.
We also add to our holdings of United Health Care (UNH) and HCA Healthcare (HCA) bringing those positions to full model weights as the pullback to support held.
Yesterday, one of our users discovered a glitch in the indices overview sector where the commentary was not updating for each market. That has now been corrected.
Like our long/short portfolio discussed in yesterday’s trade notes we also closed our a small short S&P 500 position and added 1/2 position in Boeing (BA)
This morning we bought a position in Boeing (BA) following the sell off on news of the crash over the weekend. Even if the two crashes of the 737 MAX are related to a structural design issue it will take years for a settlement to be reached and even longer to be paid out. (We can look at BP following the Gulf well blowout as an example.)
Therefore, in the short-term we thing there is a good trading opportunity as well as a long-term play as we added 1/2 of a position to our Equity Model as well. We will allow for weakness in the position as news works its way through the stock to add our second 1/2 position in the future.
Also, with the market short-term oversold as of the end of last week, we closed our our short S&P 500 (SH) position and added 1/2 position in 2x S&P 500 (SSO).
DID YOU KNOW – You can quickly look at the best performing sectors and see the top players in that sector. It’s a great way to come up with investment ideas if you are overweight or underweight sectors in your portfolio.
Click On MARKET DATA tab and scroll down to theS&P SECTORS link. Then select the SECTORS RELATIVE STRENGTH sub-menu tab.
March 7, 2019
Portfolio Update:
No actions have been needed over the last couple of days. Given that we are carrying an overweight position in cash and many of our positions are at 1/2 weights, we are looking for a buying opportunity to add exposure during the correction/consolidation phase. Importantly, the market must hold the 200-dma which we will evaluate in the this coming weekend’s newsletter.
DID YOU KNOW – You can compare all the FUNDAMENTAL STATS of your stock to its peers? Simply click on CHARTS and go to the FUNDAMENTALS STATS TAB
March 5, 2019
Portfolio Update:
We were stopped out of Walgreen’s Boots Alliance (WBA) on Monday and the equity portfolio has been updated. As we stated previously, we like the corner drug store model for a lot of reasons, but the market doesn’t agree with our assessment currently. We will come back to either CVS or WBA in the future when prospects improve.
DID YOU KNOW – We post our proprietary market internals for you to use in your analysis. Head over to the MARKET DATA tab and click on MARKET INTERNALS on the drop down menu.
If you click on HEAT MAP and then select GRID option you can sort Stocks, ETF’s and Funds by a variety of measures to find great long and short candidates.
As we discussed in this mornings TECHNICALLY TRADINGreport, the odds of an unabated continued rally from this point is becoming much less likely.
Based on this analysis we are closing out our long-positions in the EQUITY TRADING LONG/SHORT portfolio and taking our profits. (Note: These transactions are ONLY in the trading account and are not applicable to the Equity portfolio which has a longer-term investment horizon.)
Today, we sold:
RTN
UTX
HCA
VMC
MSFT
LLY
YUM
We are maintaining our long/short hedge of SH and XLU at the moment as we await a better opportunity for the next set of trades.
As noted in thispast weekend’s newsletter,yesterday we added starter positions in both Gold and Emerging Markets.
Equity Portfolio – 1/2 position in IAU
ETF Portfolio – 1/2 position in IAU and EEM
Gold and Emerging markets have been performing much more bullishly as of late but both are extremely overbought short-term. As always, we start with a “trading” position which limits our portfolio risk currently, and if the trade begins to work as we expect, we then add to the position for a longer-term investment.
We are still worried about the global economic weakness which will likely wind up negatively impacting emerging market stocks, but the recent break above the 200-dma, and retest, is a bullish trading setup short-term.
IAU is a hedge against rising inflationary pressures and global weakness. Again, as with our exposure in our Equity Portfolio to GDX, it is a hedge against equity risk in the short-term.
As I noted in this morning’s LONG-SHORT IDEA list, candidates are getting much harder to come by which is symptomatic of a market reaching more extreme overbought conditions.
Also, be sure and check out our new tools on the site:
This week we used our NEW HEAT MAP TOOL(Click on HEAT MAP in the menu bar above) to screen for our candidates. Change the layout to GRID and then short by a fundamental or momentum ranking.
As noted last week, the new SCAN TOOL also has several new screening parameters to include both fundamental factors(Piotroski Score) and momentum factors (Mohanram Score) along with Zack’s rankings.
More innovations are on the way…stay tuned.
February 20, 2019
This morning I posted our Selected Portfolio Position Review in which I discussed our holding of CVS Health Corp. (CVS).
To wit:
CVS has been a laggard in the portfolio and was very close to being stopped out.
The recent rally above short-term resistance is postive, but needs to rally above the long-term moving average to build momentum.
The sell-signal is improving but we are likely going to sell the position here soon when we find a suitable swap to replace it with.
Stops are moved up to $66
This morning, on rather disappointing earnings, CVS sold off and triggered our stop loss.
As discussed, since we like the “Corner Drug Store” business, we swapped into Walgreens Boots Alliance (WBA) with only a minor difference in cost basis.
Fundamentals for WBA are also comparable to CVS.
P/E: 14x
Fwd P/E: 10.56x
Income: $5.20 Billion
Sales: $134.59B
Yield: 2.36%
LT Debt/Equity: 0.45
Price/Book: 2.76
Price/Sales: 0.51
February 18, 2019
Markets are closed today, so it’s a great day to catch up on your reading.
February 16, 2019
Real Investment Report Is Now Available
February 14, 2019
**UPDATE – we closed out SSO this morning with break back below the 200-dma on pretty dismal economic data. We are leaving our hedge in place in the Long-Short portfolio.
Today’s list was created using our newly UPDATED SCAN TOOL which now includes Zack’s ranking, Piotroski Fundamental Scores, and Mohanram Momentum Scores. You use the screen to reduce the potential universe of stocks quickly to improve you stock selections. Give it a try by clicking SCAN in the menu bar above.
Yesterday, the market broke above the 200-dma which effectively now resolves the more bearish backdrop of the market from 2018. The next major resistance is at 2800 where the October and November highs reside.
If the market can clear that hurdle, then all-time highs are the next target.
Click To Enlarge
What is important, is where the market CLOSES ON FRIDAY. The breakout of the market above the 200-dma will be invalidated if it closes below that level on Friday.
If that happens the 200-dma will be reinforced as resistance for the market and it will be considered a failed test of that level.
For this reason, we have not closed out our short position in either of the equity portfolios. However, in the Equity Long-Short Portfolio we did neutralize the short position with 2x leveraged S&P 500 fund (SSO). If the market rises and confirms the breakout, we will close the short-hedge.
There are still plenty of risks to markets over the intermediate term, but the momentum behind the equity rally remains bullish for now.
Yesterday, the market ran into the 200-dma. As I noted in this past weekend’s missive, another test of the 200-dma was likely. However, what is important is whether the market can close solidly above the 200-dma by Friday’s close.
Click To Enlarge
If that happens then much of the bearish case for the markets will have been absolved, so any further weakness that maintains support at the 200-dma should be bought.
There are still plenty of risks to markets over the intermediate term, but the momentum behind the equity rally remains bullish for now.
Our equity portfolio remains somewhat defensive in nature with 17% cash currently, but we will deploy that cash opportunistically in the weeks ahead as as the market progresses.
February 12, 2019
Sector Buy/Sell Review Is Now Available
February 11, 2019
Major Market Technical Review
Equity Portfolio Update:
We added 1/2 position of UNH (United Health) to the portfolio. With support close by, we will watch and wait for a an opportunity to fill out the other half of the position.
February 9, 2019
Weekend Newsletter Is Out!
Over view of market technicals and backdrop.
Sector and Market analysis.
Portfolio positioning
401k Plan Manager.
February 8, 2019
Yesterday, we added a small short-position to the Equity Portfolio as a hedge (we used SH) as the market is currently tracing out the pathway we laid out a couple of weeks ago.
Right now, the hedge is small relative to the size of the portfolio, but the composition of the portfolio is already very defensive plus we have an outsized holding of cash.
Support for this pullback is at the confluence of the Oct-Nov bottoms and the rising 50-dma. If that support holds we will add to our existing equity holdings and remove all hedges. If it fails, we will continue to build the hedge to protect capital.
Importantly, the risk IS elevated. As noted in the chart below, the rising wedge from the lows has been violated. The market MUST close in the green today otherwise the 100-dma and the 350-dma will be violated as well.
As noted yesterday, the market is looking to pull back here a bit after running into the 200-dma which is in line with our path prediction described a couple of weeks ago. (Click To Enlarge)
We have a hedge ready to introduce to portfolios if the market closes below 2710 by Friday. Such a close would reflect a further decline back to a minimum of 2625-2675, but lower levels are certainly viable.
After the State Of The Union address we will sit back and wait for some type of corrective action before taking any further actions within portfolios.
I am looking to sell COST and CVS opportunistically and am looking for positions to swap into.
Two weeks ago I produced the following chart with a Green projection line for the market. The rally has exactly traced that projection since that time and hit our targets which is why we reduced some of our overweight core positions yesterday.
The ideal pullback target will be a retracement back to 2625 that holds. (Click to enlarge)
Ahead of tonights “State Of The Union” address, we are adding Basic Materials to our ETF portfolio in anticipation of proposal for an infrastructure program.
We are offsetting that purchase with a reduction in both RSP and VYM as the market has come too far, too quickly and has hit our near term targets of the 200-dma.
Equity Portfolio Actions: Reducing DOV adding VMC
In the Equity model we are taking some profits in DOV which has had an enormous run following their earnings announcement and we are picking up VMC (Vulcan Materials) which should benefit from any talk about infrastructure spending plans. They also announce earnings next week which could be a positive catalyst for the company.
Equity Long/Short – Adding VMC and increasing SH
We are also adding VMC to the long/short portfolio for the same strategy as the Equity model, but given the extreme run of the markets in recent weeks we are also adding to our S&P 500 short position as a hedge.
As we have discussed previously, the market has been consolidating along the 50-dma and the Oct/Nov lows within a very tight range as shown in the chart below. (Click to Enlarge)
Yesterday, the Fed announced that not only would they be patient with further rate hikes, but also is open to moderate balance sheet reductions as need. In short, Jerome Powell admitted he was the “market’s b*tch.”
With that the S&P 500 broke out of its consolidation and above the running downtrend line from the 2018 highs. This sets up a run to the 200-dma as the most likely outcome over the next couple of weeks.
We had launched the ETF model at the first of January at 1/2 weight. Yesterday, we added the positions as noted above and brought the model to full target weights of 75% exposure. This still leaves 20% in cash, 35% in fixed income and 45% in equities.
When the weekly “buy” signals are triggered we will bring the model up to full target weight on the equity side of the allocation.
January 30, 2019
Update: Market is rallying today and is running into the bottom of its downtrend from the 2018 highs. We are just going to wait to see what the Fed says and how the market interprets it. We have some trades on deck that we are looking to institute in both the Equity and ETF portfolios.
Also, make sure and read today’s portfolio position update.
Much as been made about the bullish ratio of price to forward earnings. In today’s article, Price To Forecasted Hope, we help make sense of the valuation model and explain why it might be sending the same false buy signal it sent in November of 2007.
“NEW MENU ITEM” – ANALYST RECOMMENDATIONS
Check out the new “tab” on the menu bar above labeled “ANALYST.” This page allows you to scan Wall Street and media buy/sell/hold recommendations for your favorite stocks. We also made updates to the portfolio page to make the Transactions table sortable and added a Closed Positions tab. Below is a screen shot of the new Analyst tab.
These changes started as requests from subscribers. Please keep them coming.
January 29, 2019
Sector BUY/SELL Review is available:
“NEW MENU ITEM” – ANALYST RECOMMENDATIONS
Check out the new “tab” on the menu bar above labeled “ANALYST.” This page allows you to scan Wall Street and media buy/sell/hold recommendations for your favorite stocks. We also made updates to the portfolio page to make the Transactions table sortable and added a Closed Positions tab. Below is a screen shot of the new Analyst tab.
These changes started as requests from subscribers. Please keep them coming.
January 28, 2019
Markets are set to open lower this morning as concerns over global growth are seeping into corporate earnings. While CAT beat estimates this morning, their outlook for global growth was weaker than expected.
The Fed is on deck this week, so all eyes will be focused on their statement with respect to any guidance on potential ceasing rate hikes and balance sheet reductions.
We will likely hold off on any portfolio changes until after the announcement.
Be sure and read today’s recommendations for the major markets.
Also, catch up on all of our sector and market analysis from this weekend’s newsletter.
January 25, 2019
** UPDATE #2 **
In the Equity Account we sold ABBV and PFE. Both positions broke down out of consolidation patterns suggesting lower price levels for now. ABBV had a poor earnings announcement and performance of both PFE and MRK has been extremely weak. We BOUGHT 1/2 position in HCA as we need Health Care exposure and added to our position in GDX.
** UPDATE #1 **
In the Equity Trading Account we sold AAP and AZO. Both positions broke down out of consolidation patterns suggesting lower price levels for now.
As noted yesterday, we made added some equity to both the trading and equity model.
This morning, futures are pointing sharply higher on reports from the WSJ that the Fed is considering ending their Quantitative Tightening (QT) process much sooner than expected. To wit:
“Federal Reserve officials are close to deciding they will maintain a larger portfolio of Treasury securities than they’d expected when they began shrinking those holdings two years ago, putting an end to the central bank’s portfolio wind-down closer into sight.
Officials are still resolving details of their strategy and how to communicate it to the public, according to their recent public comments and interviews. With interest rate increases on hold for now, planning for the bond portfolio could take center stage at a two-day policy meeting of the central bank’s Federal Open Market Committee next week.“
Given the weakening economy, pressure from the Administration, and the recent market correction, it is not surprising to see the Fed buckle to pressure from their member banks.
Despite a 10-year economic recovery, the Fed, the markets, and the economy are still reliant on “emergency measures” for support. What could possibly go wrong?
However, for now, the markets are moving back into a much more “bullish mode.” With February fast approaching, which tends to be a weaker month, look for pullbacks to support to begin increasing equity exposure.
January 24, 2019
We made several portfolio changes today. (All portfolio models have been updated)
Equity Model
We added 3 new positions at 1/2 weight. (With the market very overbought we are looking for a pull back to add to our holdings at a better cost basis and with better risk/reward measures)
MSFT – Microsoft Corp.
UTX – United Technologies
YUM – Yum Brands (From our long-short idea list)
Given that we are only about 1/2 weighted within our equity model currently, we have temporarily swept our excess cash into an ultra-short Treasury bond ETF:
BIL – 1 to 3 Month Treasury
ETF Model
We are currently weighted only at our core holdings (RSP, VYM, IVV)
We have swept excess cash into BIL as a temporary place holder until we get a better risk/reward entry point for increasing exposure to equity risk.
January 23, 2019
Markets sold off yesterday and bounced off of the first level of support as I laid out in this past weekend’s RIA Report.
Pathway #2: Given the extreme overbought condition of the market, a pullback is likely. The most bullish would be a retest of the Oct/November lows that works off the short-term overbought condition. This would provide the best opportunity for a push above the 200-dma. Given the overbought short-term condition of the market, the compressed rise in prices, and extension from the lows, a correction is likely to entail a bigger draw down. (Probability 20%)
As shown, the market pulled back to that first level of support.
(Click to Enlarge)
The good news is the market did hold on to both the 50-dma and previous support line running back to January of 2018.
That wasn’t going to be the case until Larry Kudlow came out late yesterday to say the meeting China’s delegation had NOT been called off. I am pretty sure this will likely turn out to be a fallacy as we have seen both the Fed and the White House panicking over the recent decline. As such, we have moved into an environment where every pullback has to be met with reassurance.
Importantly, the overall downtrend is intact and there is a fairly high probability that current support will fail in fairly short order. Remain defensive for now.
January 22, 2019
Markets are set to open lower this morning as trade tensions and global growth concerns return to the forefront.
While earnings have been “okay” so far, as I noted in today’s “Fundamentally Speaking” the majority of the beats are coming in against sharply lowered estimates. In fact, despite all of the media “hype” about exploding earnings, both revenue and earnings are slated to have a negative growth rate for the quarter.
For now we are watching the markets carefully. We remain underweight equity and over-weight cash and fixed income as this rally has run into important resistance and most of the short-covering, which has fueled the rally from the December lows, appears to be completed.
The chart below lays out potential retracement ranges for a pullback with the most bullish in “green” and moving to the most bearish in “red.” My suspicion currently is we see a 5% pullback from current levels which would pull the S&P 500 back to the 50% retracement level wiping out half of the gains from the December 24th low. (This is an important point not to be overlooked. While the media often dismisses pullbacks by saying “yes, the market pulled back 5% after advancing 12%, the reality is that decline wiped out 50% of the previous gains.
(Click to Enlarge)
With markets extremely overbought short-term, remain cautious for a better opportunity to increase exposure.
January 21, 2019
On Friday, bonds provided the pullback that we had been looking for to add to our fixed income holdings. As shown in the chart below, the long-term trend in bond indicators are all signaling the next leg of the “bond bull” market.
While this doesn’t mean that interest rates can bounce up back toward 3.0%, the overall trend of rates is going lower over the next couple of years. Given the rising risk of a recession in the next 24-months, it is highly likely that rates will ultimately fall below 2%.
In the models we added to our existing bond holdings:
DBLTX – Doubleline Total Return Fund for GNMA exposure.
GSY – Short-duration bonds which will protect against rate volatility.
SHY – Same as GSY but with a U.S. Treasury based structure for increased credit quality.
TFLO – Treasury floating rate fund for increase credit quality.
In a recession, corporate bonds are at the most risk of declines in prices which is why our focus currently is on duration and credit quality. When bullish trends are firmly established we will begin to add positions to add to duration to participate in the rate decline.
NOTE: In our actual client portfolios we use individual bonds but in order to get consistent and stable pricing across models we are using the above holdings as a “proxy” for our client portfolios.
January 18, 2019
In our Equity Trading (Long-Short) Account we added the following positions this morning:
This adds additional long-exposure to the portfolio while we still carry our short hedges.
We currently have 3-4 equity positions we are looking to short as well and are just waiting for the right positioning within the overall market to increase our short-book further.
January 16, 2019
Yesterday, we added to our existing XLU trade in the equity trading portfolio and add 1/2 of a position to the ETF model.
As discussed in this past weekend’s newsletter, the Utilities sector continues in a very bullish trend currently and is also a defensive position against potential market weakness.
The chart below shows the market rally from the December lows. Most importantly note the rather dramatic plunge in volume on the rally at a point where the market is very overbought short-term and the advance-decline remains in a substantial downtrend.
(Click to enlarge for readability)
As stated yesterday:
“I continue to believe, currently, that at a minimum we will retest lows over the next couple of months. This is why we remain very underweight equities across all models currently.
However, if the market is able to rally above resistance and begin to reverse the negative trend of the market currently in place, then we will adjust accordingly and increase equity risk. However, such is not the case currently.”
We remain cautious for now and will look for a better opportunity to add equity exposure tactically.
January 15, 2019
I wanted to draw your attention to the NEW DAILY posts we are producing for you each day. Today, we are covering the major sectors of the market with technical entry and exit points for traders.
As I discussed in today’s technically speaking post, the recent rally in the market has been nice but has done little more than retrace most of the breakdown from the October/November lows.
With a lot of overhead resistance, the market back to short-term overbought conditions, and volume on the decline, as shown below, there is not a lot of reward currently relative to the potential risk of a retest of December lows.
I continue to believe, currently, that at a minimum we will retest lows over the next couple of months. This is why we remain very underweight equities across all models currently.
However, if the market is able to rally above resistance and begin to reverse the negative trend of the market currently in place, then we will adjust accordingly and increase equity risk. However, such is not the case currently.
January 10, 2019
Trade Update: In the Equity Portfolio we sold the following stocks:
AXP
CDW
MDT
MSFT
UNH
As we have mentioned on numerous occasions, we have been looking for the market to bounce from extreme oversold conditions to reduce our equity exposure. Given overhead resistance and the unwind of oversold conditions we reduced our equity exposure. At noon, we sold the shares listed above accounting for approximately 6% of the portfolio.
January 9, 2019
Trade Update:
In our newly created Equity L/S Trading Portfolio, located in the Portfolios tab – RIA PRO we made our first trade.
We purchased:
50 Shares of XLU (SPDR Utility ETF) at 52.875 representing 2.6% of the portfolio
170 Shares of SH (Proshares short S&P 500) at 30.275 representing 5.1% of the portfolio
These trades are part of the first leg into a larger trade. Currently, and subject to change, we expect to own 5% XLU, 10% TLT (iShares 20yr+ Bond ETF), and 15% SH. This combination of positions should do well if the market resumes its bearish trend. The S&P 500 is currently hitting the underbelly of many resistance levels which provided us the rationale to put on these opening trades. We do believe there is a decent chance the market can rally further so we will wait to add to the trade.
We will monitor the trade and the market closely and add to the position or close it if necessary.
Equity L/S Trading Portfolio Description
This portfolio is completely flexible and will take on trades which are both long or short. The portfolio can buy stocks, ETF’s, or mutual funds OR can be fully invested in cash.
There is no defined holding period for any position bought which means it can be opened and closed within the same trading day.
When trades are placed in the trading account we will report those trades after the close of business.
As noted yesterday, the rebound from the December lows is set to continue today as hopes for a resolution of the “Trade War” with China is close.
Given that this whole situation was started by the current Administration, we expect the announcement to be little more than a “cease fire” for some period of time and talks to resume later. The goal of both the U.S. and China delegations is to remove the “trade war” off of the headlines and relieve the economic pressures on both countries.
In the meantime, the markets are approaching our initial resistance point at 2600-2650. There is a potential that if the markets can break above that resistance we could see a retest of the the previous November/December highs. However, that is likely the extent of the rally before we ultimately see a retest of recent lows.
However, if you are looking for long and/or short candidates for your portfolio, RIA PRO shows you the best and worst performing stocks each day under the “Active Trader” tab. As always, momentum tends to run in one direction for a while, so strong players tend to remain strong, and the weak can be shorted.
There are a tremendous number of hidden gems on the site so explore and feel free to ask us questions if need help.
Have a profitable day.
January 8, 2019
NOTE: We have launched 4-new reports that will be produced regularly:
Monday – Major Market Buy/Sell Analysis
Tuesday – Major Sector Buy/Sell Analysis
Wednesday – Portfolio Position Technical Review
Thursday – Watch List Review
If you have any suggestions to improve these reports, please let us know.
Market Update
The market continues to rally following the deeply oversold condition seen Christmas Eve. As noted by the “Technical Measures” gauge on the right, that gauge fell to 6 during the recent sell off. To understand the importance of that oversold condition I have overlaid the technical measure with the S&P 500 index.
While technical measures have rebounded over recent days, the previous low read of 6.47 was on of the lowest seen during previous corrections and bear markets.
IMPORTANTLY: Note that during real bear markets, the indicator tends to reach lows as seen recently. However, during previous bull market the lows tend to remain around a reading of 50. During the last decade, when lows below 20 were reached, which would normally indicate the onset of a bear market, either the Fed or Central Banks stepped in with liquidity. This time, Central Banks are extracting liquidity which may suggest we see a retest of recent lows before the current corrective cycle is complete.
Our target for this rally remains 2550-2600.
January 6, 2019
As we noted previously, the models we built on RIA PRO were replicas of the models we run internally at RIA Advisors for our clients. However, the models were NOT total return as they did not include the dividends, interest, and distributions from the underlying holdings.
Therefore, as we have been noting over the last couple of months, we have launched THREE new LIVE portfolios with each tracking a LIVE account we manage at TD Ameritrade.
The 3-models are:
60/40 Equity Portfolio
60/40 ETF Portfolio
Trading Portfolio
Equity Portfolio – Start Date 1/4/2019
The portfolio was bought into the same holdings which are currently owned by our equity only clients. These holdings will be managed according to the same technical and fundamental processes that we employ at RIA Advisors.
We are using ETF’s and Mutual Funds for the fixed income portion of the model.
Trades will be reported AFTER the close of business when they are made.
ETF Portfolio – Start Date 1/4/2019
This portfolio is comprised of all ETF’s and trades will be reported AFTER the close of business when they are made.
We have currently bought 1/4th of our CORE Equity and BOND sleeve so far. We will continue to build out the model opportunistically until we get to full weightings.
Trading Portfolio – Start Date 1/4/2019
This portfolio is completely flexible and will take on trades which are both long or short. The portfolio can buy stocks, ETF’s, or mutual funds OR can be fully invested in cash.
There is no defined holding period for any position bought which means it can be open and closed within the same trading day.
When trades are placed in the trading account we will report those trades after the close of business.
________________
At the end of each month all dividends, interest, and distributions will be added to the CASH balance of the portfolio as they are reported on the account statements.
Furthermore, in the next couple of months we will add performance tracking of the portfolio over different time frames for comparison purposes.
Thank you for your patience.
December 26, 2018
As I noted yesterday, the market is sitting on very important long-term support and needs to defend current levels. To wit:
“Currently, the market has started a mean reversion process back to the 200-week (4-year) moving average. As you will notice, with only a couple of exceptions, the 200-week moving average has acted as a long-term support line for the market. When the market has previously confirmed a break below the long-term average, more protracted mean-reverting events were already in process.”
“While, the bulls remain in charge for the moment with the market sitting just a few points above the long-term average. A weekly close below 2346 on the S&P 500 would suggest a deeper decline is in process.”
After a brutal sell off over the last 8-trading days, US equity futures are rebounding from overnight trading which saw the E-mini initially tumble 1% early in the overnight session, then rise as much as 0.6% in yet another illiquid session boosted by Trump’s latest attempt to talk up markets after an apparent de-escalation in tensions between the president and the Fed chair and Treasury Secretary. Earlier, Asian stocks outside of Japan dropped 0.2% to a two-month lows catching down to Monday’s US market rout, while Europe was mostly closed for trading.
S&P 500 contracts gained 0.6% as of 7am ET after falling as much as 1.1 percent earlier. Futures on the Nasdaq 100 Index and the Dow Jones Industrial Average advanced 0.4 percent and 0.5 percent, respectively. With the S&P closing on the edge of a bear market, traders will be looking for confirmation of more liquidation selling or else an attempt at lifting stocks from massively oversold levels.
Top Overnight News
U.S. stock-index futures whipsawed between losses and gains, as investors assessed comments from President Donald Trump that he was confident in Treasury Secretary Steve Mnuchin and the American economy while the benchmark index sat at the edge of plunging into bear market territory
President Trump’s frustration with Mnuchin is ratcheting up after his attempts to calm Wall Street failed, CNN reported, citing a source close to the White House.
Japanese stocks rose for the first time in six days as electronics makers staged a rebound after the Nikkei 225 Stock Average tumbled into a bear market on Tuesday
Bank of Japan Governor Haruhiko Kuroda said growing overseas economic risks and recent market volatility are precisely the kind of circumstances that call for sticking with powerful and sustainable stimulus
Oil in London fell below $50 a barrel for the first time since July 2017 as broader financial market turmoil and worries over U.S. supply countered signals from the OPEC+ coalition that it may extend or deepen output cuts
Gold is rallying into the end of 2018 as turmoil in global equities, the partial U.S. government shutdown and concerns about the outlook for next year stoke demand, lifting prices to the highest in six months
December 24, 2018
As noted in this past weekend’s newsletter, the market is EXTREMELY oversold and a bounce is likely in the near term as portfolio, pension, and hedge fund managers rebalance for end-of-quarter reporting.
Our composite technical indicator, as shown below, is at 6.85 (on a 0-100 basis) which is one of the more severe oversold readings seen historically. It is suggestive of a fairly strong reflexive rally in the month or so ahead particularly as we flip the calendar. However, this is a trading bounce only and longer-term investors should look to use the bounce to reduce equity exposure further. It is unlikely we are going to resume the bull market in 2019 based on the current economic and fundamental backdrop.
REMINDER!
RIA PRO Model Changes
The current RIA PRO portfolios were built during the BETA Testing phase of our development. As such, the portfolios are CAPITAL APPRECIATION only and do not reflect the interest income from the bond holdings or the dividends from the equity holdings.
Starting in January, we will discontinue the three current portfolios and will swap to 3-portfolios tied to live accounts which gives you three important advantages:
Trades will be able to reported “real time” instead of a 3-day delay.
Interest and dividends will be credited the the portfolios on a monthly basis
Total returns, including all costs, will be reported.
We apologize for any inconvenience but we feel this will be a much better way to align the RIA PRO models to actual results for tracking purposes. We will keep you apprised of progress over the next month before we make the final changes.
Thank you.
December 20, 2018
Trade Alert
We sold IVV from all three portfolios. In the 60/40 ETF Model we reduced the position by 5 percent from 14.50 to 9.50. In the other two portfolio we sold the entire position.
We sold the entire position of XLV in the 60/40 ETF Model.
We are increasingly convinced a bear market has begun. We will not get concrete evidence until month end. Given the sloppy price action and the tone from the Federal Reserve and Jerome Powell, we thought it appropriate to reduce our exposure further.
It is possible the market bounces as it is extremely oversold. However, we maintain that these bounces are opportunities to sell and should not be mistaken for a resumption of the bull market. If the technical outlook changes we will reverse that stance but for the time being we believe conservatism is the best course of action.
Changes in the portfolios as shown will occur shortly.
REMINDER!
RIA PRO Model Changes
The current RIA PRO portfolios were built during the BETA Testing phase of our development. As such, the portfolios are CAPITAL APPRECIATION only and do not reflect the interest income from the bond holdings or the dividends from the equity holdings.
Starting in January, we will discontinue the three current portfolios and will swap to 3-portfolios tied to live accounts which gives you three important advantages:
Trades will be able to reported “real time” instead of a 3-day delay.
Interest and dividends will be credited the the portfolios on a monthly basis
Total returns, including all costs, will be reported.
We apologize for any inconvenience but we feel this will be a much better way to align the RIA PRO models to actual results for tracking purposes. We will keep you apprised of progress over the next month before we make the final changes.
Thank you.
December 18, 2018
Be sure and read today’s post on the market as I walk through some of the longer-term underpinnings of the market.
We have been giving the market a little room here due to deeply oversold conditions, but that has proved problematic as the markets have been unable to muster a rally. However, with the Fed on deck today and tomorrow, it is likely the market will rally on “dovish” comments from the Fed.
We will be using that rally to raise more cash heading into the end of the year as the markets have now changed their overall trend from bullish to bearish.
This morning futures are higher following better than expected housing data (less bad than expected.)
Dow: +128
S&P 500: +14.25
Nasdaq 100: +39.75
Crude Oil: -1.39
Gold: -0.20
The target for the rally is 2600 which is likely all we are going to get for now. Be a scale up seller.
European Union will rule out doing mini deals with the U.K. to ease the chaos of Britain crashing out without a divorce agreement, and instead take unilateral steps to protect its interests, a person familiar said
U.K. said to prepare migration policy favoring high earners, after months of arguments over which applicants should be given preference
Chinese President Xi Jinping said his government will continue a multi-year effort against pollution, poverty and financial sector risks, while underlining commitment to the multilateral global trading system
China Daily reports individual income tax reduction will be on top of Chinese government’s task list next year, citing an unidentified official
President Trump slammed the Fed on the eve of its policy meeting for “even considering” another rate increase, and suggested the central bank has no reason to move because inflation is low
Fed rate hikes are extremely rare when stocks are this beaten up
Reserve Bank of Australia struck a slightly dovish tone in minutes of its last policy meeting of the year
Bank of Canada Governor Stephen Poloz says he isn’t expecting a recession in 2019. The economy is operating near capacity and inflation on target means rates should be more normal and move toward a neutral range of 2.5% to 3.5%
China’s holdings of notes, bills and bonds dropped for a fifth month to $1.14t in October, from $1.15t in September, according to Treasury Department data
Crude settled below $50 a barrel in New York for the first time in more than a year and continued falling in after-hours trading
The EU will rule out doing mini deals with the U.K. to ease the chaos of Britain crashing out without a divorce agreement, and instead take unilateral steps to protect its interests, a person familiar with the bloc’s plans said
M&G Investments is building up its war chest of U.S. Treasuries on wagers that yields in the world’s most liquid bonds are likely near their peak
This week, Sweden’s central bank may be facing its most difficult meeting since 2011. That’s the last time the bank raised interest rates and, in so doing, set in motion a cycle that ultimately ended in the deployment of crisis measures
Germany’s federal government plans to increase gross borrowing by around 15 percent to 199 billion euros next year to accommodate refinancing of the nation’s “bad bank” fund that was set up during the height of the financial crisis
“Given the Fed meets next (this) week, we are going to give our trade just the smallest margin of movement currently for three reasons:
The market is deeply oversold which will contribute to a bounce on any bit of good news.
The index closed lower than where it opened for 4-consecutive days. Such selling is often met with a one or two day bounce.
Lastly, as noted previously, distributions for mutual funds are now mostly complete and they have to rebalance portfolios before the end of the reporting year. With next week having the highest historical probability for a rally, a more ‘dovish’ than expected Fed could spark a bit of buying frenzy.
While we are expecting an oversold rally, remember after having reduced exposure in portfolios previously, and carrying a much heavier weighting in cash, we are giving the market time to figure out what it wants to do. Given the consolidation range over the last couple of months, it is too risky to be either overly short, or aggressively long, currently. Cash remains the best hedge currently.
But let me repeat the most important point:
‘The expected rally IS NOT the next version of the ‘bull market.’ Nor does a rally mean the ‘bear market’ is over. It will be a counter-trend rally to sell into.’”
This morning futures are pointing lower at the open after Europe’s rally fizzled follow extremely poor retail sales data.
The dollar’s gains over the past three months have spurred hedge funds to cut bullish bets to the lowest since June. Leveraged funds trimmed positions wagering on gains in the greenback by the most since September, according to the latest data from the U.S. CFTC based on eight currency pairs
Donald Trump won’t be sitting down with Special Counsel Robert Mueller to answer more questions in his investigation into election interference, Rudy Giuliani, the president’s attorney, vowed on Sunday
U.K. Prime Minister Theresa May will attack supporters of a second Brexit referendum on Monday as she explains to Parliament why European Union leaders rebuffed her attempt to make her divorce deal more attractive to lawmakers
Australia is on track to return to the black for the first time since the global financial crisis, almost doubling the size of its projected surplus in fiscal 2020, according to projections from the Treasury
The Italian government will trim its deficit target for next year in its latest proposal that seeks to avoid EU sanctions for violating the bloc’s budget rules, the Ansa news agency reported
The toll Brexit is taking on the U.K. housing market was laid bare in surveys published Monday
December 14, 2018
Another disappointing rally attempt yesterday which started out to the upside once again, but failed.
While the market did close “flattish” for the day, the price action this entire week has been dismal. As shown, every day has been sold off after the open.
The failure of the market to maintain a rally is not a good sign, however, with mutual fund distributions now behind us for the year, next week provides the best opportunity for a rally as portfolio managers need to rebalance their holdings for the end of year reporting period.
Nonetheless, our trade is simply not working at this point. Stops remain tight while we are still looking for a rally into the Fed meeting next week.
Economic data continues to come in weak, not only domestically, but globally as China reported weak economic data this morning. Retail sales were not exciting at the headline, but core sells were up 0.9% for the month which was not surprising given we are in the Christmas holiday shopping season. Overall, retail sales have been disappointing for so far and suggests the consumer is slowing down.
This morning looks to open weak with futures down -22.00 on the S&P 500.
Let’s see if buyers show up after the open.
December 13, 2018
It was a disappointing rally yesterday which started out strongly to the upside with a more than 40-point advance on the S&P 500 to only end up 14-points by the end of the day.
It continues to be a struggle for the market to find footing as each step forward (positive news on trade) is offset by another shock from the White House (immunity given to publisher of National Enquirer.)
Yesterday, was an exact clone of both Monday and Tuesday of this week and the failure to maintain an advance in the market is becoming markedly more concerning particular as we continue to “eat up” the oversold condition that previously existed.
Futures are higher again this morning with the S&P up +10.25, however, Oil is fading back to 50.61/barrel.
Interest rates bounced up a bit yesterday from an extremely overbought condition, look to add to fixed income holdings if rates approach 3% on the expected rally in the market.
This morning the economic data continues to worsen suggesting a much weaker economic environment:
Export Prices: -0.9%
Export Prices Ex-Ag: -1.0%
Import Prices: -1.6%
Import Prices Ex-Oil: -0.3%
(These data points, as we have stated previously, continue to show there is no real “risk” of inflation. This puts the Fed in a much tighter spot on continuing to hike rates into 2019.)
Stops remain tight on our trading position in IVV.
Let’s see how the day goes.
December 12, 2018
As noted in yesterday’s update:
“We added 5% of IVV as a trade at 267.32 per share. I will update the model portfolios later today.”
Yesterday, the market opened up about 30 points. We waited for the mid-day fade to add our trading position, however, we were a bit early as White House antics drug the market into negative territory late yesterday. Fortunately, the market recovered back above our stop-loss level of 2633 before the close.
Today, the market looks to open higher as news of progress with China on trade hit the wires last night. Also, President Trump also stated he could intervene into the Huawei case if needed to keep “trade talks” moving forward.
Given that President Trump has staked his entire record of success as a President on the direction of the stock market, it is not surprising to see him react to the market in terms of policy. This is not the way to successfully govern, but for now it helps our trading positions so we will take it.
Of course, this is an exact clone of yesterday’s open so we need to see it maintain during the day.
We are moving our stops down to yesterday’s lows of 2620 (on a closing basis) for now, but will begin raising stops if the expected rally forms. Target is 2730-2740.
December 11, 2018
**UPDATE 1: We added 5% of IVV as a trade at 267.32 per share. I will update the model portfolios later today.
Yesterday, the market did indeed break the “neckline” and successfully tested the 2018 lows. However, since the market rallied back, and closed, above that support level the “break”is not valid. This keeps the current consolidation range intact for now.
With the market very oversold, a reflexive rally is likely over the next few days.
We are looking to add a “trade” to portfolios for a potential rally back towards the 2750 level by Christmas. We will maintain a tight stop at 2633 for now. If the trade works we will move the stop up daily.
December 10, 2018
As I noted on Friday, be sure and read this week’s market report as I cover the short, intermediate, and long-term technicals.
This morning, futures are pointing lower suggesting a break of the neckline as I laid out previously.
With the market very oversold on a short-term basis, and sentiment much more negative, don’t make any hasty decisions today. What will matter is where we finish the week.
If the market finishes the week BELOW the neckline, then look for a failed rally back to the neckline to institute “short market” positions.
If the market finishes the week ABOVE the neckline, then the break will be negated and we are back within the consolidation band looking for a resolution.
As I noted on Friday, a rally is highly likely. We continue to suggest using any rally to reduce risk and rebalance accordingly.
December 8, 2018
Be sure and read this week’s market report as I cover the short, intermediate, and long-term technicals. A couple of important notes, however.
The market is testing the important neckline support of the current “head and shoulders” formation as noted earlier this week.
The market is very oversold on a short-term basis and sentiment has gotten much more negative. The market is looking for ANY good news to rally on which could come over the next two weeks for various Fed officials dropping “trial balloons” before the December 18-19 meeting.
Given President Trump has staked his entire Presidency on the “market” as a measure of his “success or failure,” look for tweets, comments, or actions which will be lofted out there to try and support the markets.
As noted, with the market very oversold, a rally is highly likely. Use any rally to reduce risk and rebalance accordingly. Being overweight cash remains the optimal hedge in an uncertain market.
REMINDER!
RIA PRO Model Changes
The current RIA PRO portfolios were built during the BETA Testing phase of our development. As such, the portfolios are CAPITAL APPRECIATION only and do not reflect the interest income from the bond holdings or the dividends from the equity holdings.
Starting in January, we will discontinue the three current portfolios and will swap to 3-portfolios tied to live accounts which gives you three important advantages:
Trades will be able to reported “real time” instead of a 3-day delay.
Interest and dividends will be credited the the portfolios on a monthly basis
Total returns, including all costs, will be reported.
We apologize for any inconvenience but we feel this will be a much better way to align the RIA PRO models to actual results for tracking purposes. We will keep you apprised of progress over the next month before we make the final changes.
Thank you.
December 6, 2018
Comments Wednesday morning from the Chinese that progress was indeed made on a trade truce at the G-20 meeting, had futures rallying very mildly. Unfortunately, the markets were closed for President Bush’s funeral. There was hope of some carry through into today until news broke last night of the arrest of Chinese national in Vancouver.
Ms. Meng Wanzhou , the CFO of Shenzhen-based Huawei, the world’s second-largest maker of telecommunications equipment, was arrested in Vancouver on December 1. She is sought for extradition by the United States for an attempted sell of embargoed Hewlett-Packard equipment to Iran’s mobile-phone operator. A bail hearing has been set for Friday for violation of U.S. sanctions against Iran.
To understand the magnitude of the arrest, just imagine if China had just arrested the child of Tim Cook or Jeff Bezos.
Importantly, Chinese officials stated this morning:
“The Chinese side firmly opposes and strongly protests over such kind of actions which seriously harmed the human rights of the victim. The Chinese side has lodged stern representations with the US and Canadian side, and urged them to immediately correct the wrongdoing and restore the personal freedom of Ms. Meng Wanzhou.
We will closely follow the development of the issue and take all measures to resolutely protect the legitimate rights and interests of Chinese citizens.“
With that also went any hope of a “trade truce” or “trade negotiations” which is a fight President Trump continues to lose, and can’t win, with China.
As such, futures are down sharply this morning and the markets are threatening to break critical support levels. As I discussed yesterday:
“Most importantly, the most recent failure at key resistance levels has set the market up to complete the formation of a ‘head and shoulder’ process. This is a topping pattern that would suggest substantially lower asset prices going into 2019 ‘IF,’ and this is a key point, ‘IF’ it completes by breaking the lower ‘neckline.'”
The neckline currently resides at 2630ish and support of the closing October lows at 2640. A confirmed break of those levels will suggest a further decline in the market of the same distance as the previous decline, which in this case, would equate to roughly 300 points of downside.
We will continue holding higher levels of cash and fixed income and any confirmed break will increase our cash holdings considerably.
December 5, 2018
The “sell off” yesterday was much different than what we have seen previously. As I noted in recent missives, during the previous declines volatility, bond prices, and gold didn’t confirm any “panic” in the market. Yesterday, that changed as 10-year Treasury bond yields plunged below 3% as money sought the safety of Treasuries.
As I noted in yesterday’s Technical Update, which was posted before the opening bell:
“We did add some equity exposure to portfolios on Friday, but are still holding a higher level of cash than normal. As shown below, the 61.8% Fibonacci retracement level, and the 2016 bullish trend line, have remained formidable adversaries to the previous rally attempts. However, if the lower “sell signal” is reversed, such would likely coincide with a breakout above resistance and confirm a new uptrend is underway.”
“IMPORTANT: It is the success or failure of this rally attempt will dictate what happens next.
If themarket remains above the 50-dma AND breaks above resistance at 2820, then another attempt at all time highs is likely. (Probability Guess =40%)
However, if this rally fails such will result in a continuation of the correction back to recent lows. (Probability Guess = 60%)
So, why did I give Option #2 a greater weighting?
This is because, despite the recent oversold surge from lows, the primary backdrop of the markets has not changed markedly.
The “trade truce” was nothing more than that. China is not going to back off its position on “Technology Transfers” as that is the key to their long-term economic future. This means that either Trump caves into China or we will be back to a full on “trade war” in 2019.
The Federal Reserve is still reducing their balance sheet by $50 billion per month which has removed a primary buyer of U.S. Treasuries at a time when the Government has gone on an unfettered spending spree.
With the Democrats in control of the House, there will likely be “no” constructive legislative action to note in the next year. However, there is almost an absolute guarantee of more anti-Trump actions being lofted from the “Pelosi House.”
Valuation remains extremely elevated despite the recent correction.
Most importantly, year-over-year earnings growth rates are set to deteriorate markedly in 2019 as both the effect of the 2018-tax cuts vanishes and end-of-year estimates still remain way too high.
The deterioration in credit is accelerating
Economic growth has likely peaked.”
Most importantly, the most recent failure at key resistance levels has set the market up to complete the formation of a “head and shoulder” process. This is a topping pattern that would suggest substantially lower asset prices going into 2019 “IF,” and this is a key point, “IF” it completes by breaking the lower “neckline.”
For now, we are going to continue holding higher levels of cash and allow our fixed income holdings to pick up the slack.
December 2, 2018
After Fed Powell’s reversal on rate policy last week, the market finally got the catalyst for a bounce. On Friday morning, we anticipated the Trump would also soften his “hardline” stance on China which occurred over the weekend as Trump agreed to a “truce” with China for another 90-days. While this “truce” doesn’t change anything at all with respect to “tariffs,” or China, it does remove a short-term headwind which will allow the bulls to rally the market into the end of the year.
The sell-off in October and November violated many of our stop levels which led to a larger cash position than we would like heading into the end of the year. Friday morning we added some equity back into portfolios by starting with 1/2 positions in:
AEP – AMER ELECTRIC POWER
AXP – AMERICAN EXPRESS CO
CMCSA – COMCAST CORP A
MDLZ – MONDELEZ INTL
MDT – MEDTRONIC
MMM – 3M CO
CHCT – COMMUNITY HEALTHCARE TRUST
CDW – CDW CORP
We will also be rebalancing our current holdings and reviewing positions we were stopped out of for re-entry.
With the markets retesting the 200-dma, we are not supremely confident we are out of the woods just yet and the main issues plaguing the markets over the last couple of months have not been resolved – namely, the Fed reducing their balance sheet.
This is why we are scaling into equities with 1/2 positions which we will add to as things improve but offer little risk currently if the market breaks down.
RIA PRO Model Changes
The current RIA PRO portfolios were built during the BETA Testing phase of our development. As such, the portfolios are CAPITAL APPRECIATION only and do not reflect the interest income from the bond holdings or the dividends from the equity holdings.
Starting in January, we will discontinue the three current portfolios and will swap to 3-portfolios tied to live accounts which gives you three important advantages:
Trades will be able to reported “real time” instead of a 3-day delay.
Interest and dividends will be credited the the portfolios on a monthly basis
Total returns, including all costs, will be reported.
We apologize for any inconvenience but we feel this will be a much better way to align the RIA PRO models to actual results for tracking purposes. We will keep you apprised of progress over the next month before we make the final changes.
Thank you.
November 21, 2018
As noted in today’s commentary section, we were stopped out of multiple positions yesterday which also provided the opportunity to do so tax-loss harvesting in portfolios for year-end.
Currently, the market is oversold and is set up for a short-term bounce. In the next few days, we will look to add a trading position to portfolios for a potential year-end rally. As we have stated previously, we are moving into the “seasonally strong” period of the year combined with a post-midterm election period which have historically equated to a positive push in the market.
However, nothing is guaranteed so the recent changes to portfolios to raise cash, shore up risk, shorten-durations, and increase credit quality all remain prudent actions.
Most importantly, while the market will indeed garner a rally over the next couple of months, such will not change the fact that we are in the midst of a substantially more important topping process. The chart below lays out the potential range for a bounce before a continuation of the current decline ensues.
November 20, 2018
This morning, the market opened lower triggering stops all across the portfolio pushing sells of:
MSFT
AAPL
MU
BA
NVDA
UTX
WMT
NKE
EW
TGT
HRL
V
XLY
I will update the portfolios once the trades settle for our clients and I have final execution values for each position.
The market is EXTREMELY OVESOLD on a short-term basis and will likely bounce tomorrow or early next week. We will be using that bounce to potentially lift further positions and add further hedges to portfolios.
The breakdown this morning confirms we have most likely started a bear market and a retest of the April lows at 2575 is highly likely. Also, watch the reversion in oil prices, interest rates, and a potential spike in the VIX to confirm the breakdown.
The recent addition of Treasury bond positions and rebalancing of risk in the bond side of the portfolio has continued to mitigate risk in the short-term.
We will look to rebuild equity holdings after the market stabilizes.
November 14, 2018
As I noted in this weekend’s newsletter, the daily, weekly, and monthly charts have now all registered “sell” signals. However, as I stated:
“I want to caution you that by the time longer-term sell signals are issued, the market tends to be more extremely oversold and due for a reflexive bounce.”
This is currently the case, with many of our short-term indicators very oversold. However, on a bounce that fails to get above the 200-dma we will look to raise some additional cash and continue to rebalance risk in portfolios.
This past week, we made some changes to the Fixed Income side of the portfolio to shorter overall duration and increase credit quality:
REDUCED:
SPDR Barclay’s Investment Grade Floating Rate Fund (FLRN)
Invesco Ultra-Short Duration Bond (GSY)
ADDED:
I-Shares Treasury Floating Rate Bond (TFLO)
I-Shares 1-3 Year Treasury Bond (SHY)
We have been repeatedly warning about the risk to investment-grade and corporate bond funds when the next recession comes. More importantly, during the reversion process, money will seek out the safest of investments which will be U.S. Treasuries.
These initial moves on the bond side of the equation was to shore up both current duration risk and credit-quality. The next move will be to add a significant chuck of 10-year Treasury exposure to the portfolio on confirmation the bear market has indeed started.
On the equity side of the portfolios we have also made some changes:
Last week we sold in the ETF and Equity-ETF Models
Technology Select Sector SPDR (XLK)
Sometimes Lessons Must Be Relearned
My mistake last week was NOT selling Nvidia (NVDA) as I had planned.
I very much like the company as they are on the cutting-edge of the chips and video-cards required for everything from video-game graphics to virtual reality.
The price appeared to be making a short-term bottom and looked as if most of the “bad news” from the inventory build in processors had been built into the stock price. I opted to wait for their earnings announcement.
That was a mistake.
While the “bitcoin mining” bust was apparent, the negative revisions to their estimates and revenues was larger than I anticipated. The stock was down sharply on Friday violating our absolute stop-loss on the position.
It will be sold next week.
And the lesson I relearned painfully this past week was to “sell losers short.”
Apple (AAPL) and Micron (MU) are also on the “Naughty” list.
November 8, 2018
Now that we have cleared the mid-term elections, we are looking for the market to firm support back above the important longer-term support line as shown below.
Yesterday, the market was able to push above both previous support and the longer-term moving average which is bullish.
However, this is a WEEKLY chart, so the only thing that will matter with respect to this analysis is where we end the week.
If the market pulls back to support, holds, and turns up then we will be able to add some trading opportunities to the portfolio. After recent sells we have cash available to add some exposure as needed.
If the market fails to hold support, then we are likely going to see a retest of recent lows and the additional cash we have currently will hedge downside risk.
With the market on a more severe weekly sell signal, don’t be overly aggressive at this juncture. Much of the oversold condition that was generated during the recent decline has been erased and the market is back to more extreme overbought conditions on a short-term basis.
In Tuesday’s technical commentary, “A Sellable Rally,” we discussed the potential for a rally that had some follow through and would potentially push the markets back to overhead resistance. The rally ran right into previous support, now resistance, and failed.
With that failure, we have executed “sells” within our portfolios.
Equity and Equity/ETF Portfolios:
Selling KLAC, JPM, HD, and SU
ETF Portfolio
Selling XLF
As is our discipline, we look to sell positions that have not been performing as expected. The sells will increase our cash balance for now and give us opportunity react to other opportunities that become available.
It is to soon to tell if the recent October decline is just another “buy the dip” opportunity, as is currently believed by a vast majority of Wall Street and the mainstream media, or is this the beginning of a deeper correction to come.
We don’t know. As such this is why we are raising cash until the market determines what it is going to do next. If the market begins to resume its bull market trajectory we will add exposure back to portfolios. If not, the additional cash will hedge risk while we make further adjustments.
Allocation Gauges and Portfolio Models will be updated over the weekend once the weekly data and final settlement data becomes available.
October 31, 2018
The market finally mustered a bounce to close out a brutal month of October which saw almost exactly the same percentage decline as February of this year. However, the main difference between the two declines is that previously the 200-dma acted as support for the market. Now, the 200-dma is applying resistance to market rallies back to the 2750-2760 area.
The good news is the market did bounce and is pushing up into previous resistance levels. Furthermore, there is a potential for a “buy signal” from currently still oversold conditions. Both of these indications SHOULD theoretically provide some lift to the markets over the next couple of weeks.
However, we suggest not being complacent about this rally as the technical backdrop has changed to more bearish with the break of the running trend line from the 2016 lows.
As we have been discussing, we will continue to use these rallies to:
Rebalance portfolio risks,
Reduce/remove positions that aren’t working at better prices, and;
Re-evaluate remaining positions for additions or reductions.
We are looking to raise roughly 20% cash for the time being to hedge portfolios UNTIL such time as a more bullish backdrop emerges.
“With the market exceeding 3-standard deviations below the 50-dma currently, the extreme oversold condition still sets the market up for a fairly strong bounce. That bounce SHOULD be sold into.”
On any bounce next week we will continue to sell positions and raise cash to 25-30% of the portfolios in total.
For now, the market has changed from “buying dips” to “selling rallies” which we will honor until such time that the bull market reasserts itself.
October 26, 2018
Sold VO and IJR in the ETF and Equity/ETF models yesterday.
The failure to get “follow through days” on rallies is troubling to say the least. While this mornings opening is set to be very weak, I would not be surprised to see some buying later on this morning and into the afternoon.
With the markets DEEPLY oversold on both a short and intermediate-term basis, we are looking for a rally to 2750 on the S&P 500 to raise cash levels in all models to 25-30%.
October 23, 2018
With the market confirming a break of weekly support and failing at the recent retest of the 2016 bullish trend line, we are now on alert to use any rally back towards 2740-2750 to liquidate or reduce positions in our models.
This morning we sold RAVN at 42.93.
We will be selling on any bounce KLAC, MU, JPM, and HD.
The recent adds of NKE and FDX are dangerously close to being stopped out as well.
Overall, we are looking to reduce portfolio risk by 25-30% on a rally and raise some cash heading into the end of the year.
We have been trying to give the markets a bit of room given that it is October, a historically volatile month. Also, stock buybacks will return towards the end of the month and there will likely be some performance chasing heading into the year-end which could be supportive of higher asset prices in the near term.
We are trying to balance the current extreme oversold condition, which should provide a sellable rally, against the risk of a bigger short-term correction.
However, the bigger issue is that we may have witnessed a more important trend change that will be determined by the strength and magnitude of any reflexive rally this week.
October 13, 2018
Lot’s of analysis in this weekend’s missive on the market and what we expect to happen next.
Here is the checklist of actions we will be looking to take on any rally:
Re-evaluating overall portfolio exposures.It is highly likely that equity allocations have gotten out of tolerance from the original allocation models. We will also look to reduce overall allocation models from 60/40 to 50/50 or less.
Use rallies to raise cash as needed.(Cash is a risk-free portfolio hedge)
Review all positions(Sell losers/trim winners)
Look for opportunities in other markets(Gold may finally shine)
Add hedges to portfolios (If the market begins to show a negative trend we will add short positions)
Trade opportunistically (There are always rotations that can be taken advantage of)
Drastically tighten up stop losses. (We had previously given stop losses a bit of leeway as long as the bull market trend was intact. Such is no longer the case.)
If I am right, the conservative stance and hedges in portfolios will protect capital in the short-term. The reduced volatility allows for a logical approach to further adjustments as the correction becomes more apparent. (The goal is not to be forced into a “panic selling” situation.)
If I am wrong, and the bull market resumes, we simply remove hedges, and reallocate equity exposure.
“There is little risk, in managing risk.”
The end of bull markets can only be verified well after the fact, but therein lies the biggest problem. Waiting for verification requires a greater destruction of capital than we are willing to endure.
“It’s probably wiser to assume [that God] exists because infinite damnation is much worse than a finite cost.” – Blaise Pascal
October 12, 2018
We have been closely watching this rout and, as noted, have several stop loss violations on various positions. While fundamentally these companies are very sound, the technical price action just isn’t strong enough to warrant the related opportunity cost.
As with all stop-loss violations, by the time the stop is triggered the position is typically already deeply oversold. Therefore, selling the immediate stop violation tends to result in an apparent “whip saw” as the stock bounces before resuming its decline. This is also the case is there is secondary near-term support for the position as well.
Therefore, we will be using this oversold bounce in the market, as noted in our daily commentary today, to lift positions which are under-performing and have broken down technically.
It is unlikely the current rout is over and we will very likely have a retest of recent lows before the next bottom is found. Having some cash on hand will both hedge portfolio risk and provide opportunity to reallocate to equity when the selling pressure is resolved.
October 5, 2018
As noted previously, KLAC, MU, and SU had triggered sell alerts. While we very much like the fundamentals of these companies, the technical backdrop remains challenging. We have moved stops up to recent support levels and it is highly likely we will be stopped out of several positions if the sell-off that started yesterday continues.
Other stocks also threatening stop loss supports are HD, FDX, NKE, PEP, COST, TGT, EW, PG, and RAVN.
There are a couple of important points to understand from this deterioration in the markets. The recent rise in rates is beginning to significantly impact the stocks most impacted by consumer spending. Should rates remain at current levels, or more higher, the impact to economic growth will be noticeable as we move further into Q4.
Secondly, we are trying to give these companies a bit of room here as October tends to be a volatile month but moving into the last two months of the year we would expect to see a bit of a “chase” for performance. This doesn’t mean we are “betting on it,” but rather it is a seasonal tendency and we don’t want to be too underweight equities moving into it.
We are definitely on “high alert” currently, particularly with rates rising, and will take action quickly if needed to protect capital.
September 15, 2018
In the last update we noted that we would be adding exposure to portfolios provide the market held its previous breakout levels. It did, and on September 11th we added seven new holdings the Equity and Equity/ETF portfolios.
The additions of JNJ, CVS, NKE, WMT, DUK, PEP, and FDX bring our portfolios up to almost full weightings as we head into the expected end of year rally. We particularly like FDX for the increase in seasonal year-end activity with Thanksgiving and Christmas “binge” shopping just around the corner.
While NKE has been in a bit of a media war over recent messaging, the fundamentals of the company remain sold and we used the pullback in price to long-term trend support to add the position to the portfolio. Like TGT, which had a similar media-driven push back due to their stance on bathrooms, the public has a short memory and fundamentals rule out over time.
KLAC, MU, and SU are all on SELL ALERTS with stop-loss levels being flirted with. We are trying to give MU and KLAC some room here as the fundamentals of these companies are very strong and valuations are cheap. However, our investment discipline and strategy requires us to act when necessary so both of these positions are on very short leashes.
SU will likely be sold on a break of support or a rally back to previous highs. The energy sector remains challenging and oil prices are at risk potentially as we move into winter. While we like the company fundamentally, it simply hasn’t performed as expected so “opportunity cost” is something we are highly aware of. If we find a better candidate, we will likely execute a swap sooner rather than later.
September 9, 2018
After a rough week for semiconductors, following several reports of slowing DRAM prices, both Micron (MU) and KLA Tencor (KLAC) are very close to triggering stop loss levels. (Read “It’s Make Or Break” for the signal semi’s are potentially sending about the broader market.)
Next week, the market will either hold support and allow us to add new holdings (which will be reported here AFTER we buy them for client accounts) OR the market will start pushing back towards three levels of lower support at 2850, 2825 and lastly 2800.
There are currently plenty of relative risks, think tariffs, which could push the market lower next week. So waiting for confirmation before adding further exposure will likely prove prudent. However, it is important to watch semiconductors as they are an economically sensitive sector and some of the messaging suggests the recent bump in economic growth may be ending.
While we like the fundamentals of KLAC and MU very much, technically they simply aren’t performing currently and a break of stop loss levels requires us to take action. Stay tuned.
August 26, 2018
On August 22nd, we were stopped out of three equity positions in our equity model portfolio.
Chevron (CVX) was sold at 119.26 / share
Constellation Brands (STZ) was sold at 203.12 / share
Eastman Chemical (EMN) was sold at 99.95 / share.
While we still very much like the fundamentals of these businesses, they all violated our stop levels. We waited for an oversold bounce to “sell into” which was provided last week.
We are looking to add 5-6 new equity positions over the next couple of weeks IF the breakout to new highs can hold. As noted in this past weekend’s missive:
“Over the past two weeks, the market did pull back to support at 2800 and subsequently broke out to new highs on Friday. With that, we will look to add equity exposure opportunistically over the next couple of weeks in accordance with the model allocations.”
Equity Model: We sold three laggards last week (CVX, STZ, & EMN) and will replace with new positions opportunistically.
Equity/ETF blended – Same as with the equity model.
ETF Model: We will overweight core “domestic” indices by adding a pure S&P 500 index ETF to offset lack of international exposure. We remain overweight outperforming sectors to offset underweights in underperforming sectors.
It is important to understand that when we add to our equity allocations, ALL purchases are initially “trades” that can, and will, be closed out quickly if they fail to work as anticipated. This is why we “step” into positions initially. Once a “trade” begins to work as anticipated, it is then brought to the appropriate portfolio weight and becomes a long-term investment. We will unwind these actions either by reducing, selling, or hedging, if the market environment changes for the worse.
“Likewise, while we upgraded the “buy signal” last week, we suggested waiting for a correction back to previous support before increasing allocations further.”
Today, the market is pulling back to support at 2800. A violation of 2800 will likely see a test of the cluster of moving averages which are spread between 2740 and 2780. With the market back to short-term oversold we have a few stocks on our watch list we are looking to add.
For now, the bullish trend of the market remains intact. However, given the seasonal weakness of August and September historically, we will be cautious in adding any exposure currently.
August 2, 2018
Overall, the bulk of the portfolio continues to perform as expected. We are closely monitoring Eastman Chemical (EMN) and Constellation Brands (STZ) which have not performed as expected. We currently have stop losses in place which are close to being triggered. Fundamentally, we still like the companies, but the technical risk is rising.
Portfolio Management Rule: Cut losers short, let winners run.
July 13, 2018
Added four new holdings to the portfolio
Buying
SU – Suncor Energy
NSC – Norfolk Southern
UTX – United Technologies
RAVN – Raven Industries.
May 12, 2018
In the RIA Portfolio you will find 6-tabs above the portfolio itself
Open Positions – positions currently open
Closed Positions – positions that have been sold.
Transactions – a complete listing of all transactions in the portfolio (buys and sells)
Fundamentals – a listing of our fundamental measures of each position
Buy/Sell/Hold – a listing of the technical measures of each position
Research – you will find PDF’s of a full REPORT and a one-page SNAPSHOT of each currently open position.
