posted on 21 March 2016
While most of the commentary above is for longer-term investors, the very short-term set up of the market is also NOT extremely conducive for increasing equity risk exposure currently.
Also, corporate share "buybacks," which have been a major support of the recent run in the financial markets, are set to go quite as earnings "blackout period" begins.
As also noted by Bloomberg:
WAITING FOR CHANGE
As discussed throughout this weekend's missive, there is ample evidence suggesting a more cautionary approach remains the correct course of action for now. Therefore, we continue to wait, watch and prepare.
As stated two weeks ago:
Neither situation will make itself apparent in short order, so relax as we let the market dictate what actions we take next. "Guessing" at the markets has not typically been a successful and repeatable strategy. As stated above, while very short-term indicators have improved, the longer-term signals have not.
S.A.R.M. Model Allocation
Working With A Model Allocation
Again, this is just for educational purposes, and I am not making any specific recommendations. This is simply a guide to assist you in thinking about your own personal positioning, how much risk you are willing to take and what your expectations are. The closer you want to track the S&P 500 Index, the less fixed income, real estate and cash your portfolio should have. For a more conservative allocation reduce allocations to equities and add more to cash and fixed income.
The Sector Allocation Rotation Model (SARM) is an example of a basic well-diversified portfolio. The purpose of the model is to look "under the hood" of a portfolio to see what parts of the engine are driving returns versus detracting from it. From this analysis, we can then determine where to overweight sectors which are leading performance, reduce in areas lagging, and eliminate those areas that are dragging.
Currently, while RISK based sectors have improved somewhat, it is still the defensive oriented sectors that continue to outperform. While these sectors have weakened recently, not surprising given the strength of the recent rally, the outperformance on a relative basis suggests that money flows remain cautiously biased.
Therefore, there have been no changes to S.A.R.M. model in the past week.
The portfolio model remains unchanged this week with CASH to 50%, 35% in bonds, and 15% in equities.
It is completely OKAY if your current allocation to cash is different based on your personal risk tolerance. This is just a guide.
If the market can pull back and establish a higher low AND simultaneously move the markets back into an oversold condition, such would likely provide a reasonable opportunity to increase short-term equity exposure.
However, for longer-term investors, we need to see an improvement in the fundamental and economic backdrop to support a resumption of the bullish trend. Currently, there is no evidence of that occurring.
THE REAL 401k PLAN MANAGER
SITTING AT TARGET FOR NOW
While the market rally was quite exceptional over the last few weeks, it has done little to change the currently negative market trends back to positive. As shown in the 401k portfolio manager chart above, all sell signals remain in place currently, and while they improved slightly over the last three weeks, they remain in the negative for now.
However, as I stated two weeks ago:
Those events were the ECB's unleashing of their "QE Bazooka" combined with the Fed's failure to hike interest rates which gave a modest boost to stocks.
As discussed throughout the entirety of this week's missive, the technical damage to the market remains over the intermediate and longer-term time frames. This suggests the reward is still outweighed by risk and continues to suggest a more cautionary allocation.
Therefore, I reiterate last week's note:
Portfolio management is not difficult, it is just a function of letting the markets tell you what it wants to do, rather than "hoping and guessing" at what YOU want it to do.
You are not in control. When you learn to accept that, managing your money becomes vastly easier.
If you need help after reading the alert; don't hesitate to contact me.
Current 401-k Allocation Model
The 401k plan allocation plan below follows the K.I.S.S. principal. By keeping the allocation extremely simplified it allows for better control of the allocation and a closer tracking to the benchmark objective over time. (If you want to make it more complicated you can, however, statistics show that simply adding more funds does not increase performance to any great degree.)
401k Choice Matching List
The list below shows sample 401k plan funds for each major category. In reality, the majority of funds all track their indices fairly closely. Therefore, if you don't see your exact fund listed, look for a fund that is similar in nature.
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