posted on 08 April 2017
I noted at the beginning of the month that we had lifted some profits out of portfolios and rebalanced risk. I also stated that we were not adding any NEW positions at that time. Such has remained our stance since then.
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However, as noted in the chart below, on a short-term basis the market is approaching a buy signal after finding support at the 50-day moving average. With there still begin a couple of months left in the seasonally strong period of the year, and confidence in the “Trump Trade" still high, if a “buy signal" is issued we will add short-term risk related exposure (tactical holdings) back into portfolios.
However, do not confuse a short-term tactical positioning in the market with an intermediate holding period in portfolios.
Currently, portfolios remain nearly fully allocated to the markets and as noted above we are simply adjusted portfolio weightings for short-term tactical positioning. However, on an intermediate-term basis, the markets remain grossly overbought and very extended. As such, the possibility of a correction has risen markedly.
In fact, my friend, Salil Mehta from Statistical Ideas sent me the following note yesterday.
In the long-term, the picture worsens substantially. From extreme overbought conditions, to similar economic growth rate backdrops, this isn’t a market that currently suggests long-term returns will remain favorable for investors.
My friend Dana Lyon’s had a great post on Friday relating to investor confidence in University Of Michigan consumer confidence survey. To wit:
As I noted last week:
That rally occurred as expected due to end of the quarter “window dressing" and portfolio rebalancing.
However, as noted above, on an intermediate-term basis be cautious.
As noted by RBC on Friday:
Translation: “Watch your ASSets."
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