Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitIQ
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitIQ
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Is the Sell Signal Still Valid?

admin by admin
September 18, 2013
in Uncategorized
0
0
SHARES
1
VIEWS
Share on FacebookShare on Twitter

by Lance Roberts, Streetalk Live

Editor’s Note: This was written before today’s Fed “no taper now” announcement.

Before we get into this week’s missive I just wanted to thank you for all of the kind, supportive and enlightening emails over the past week regarding the rollout of our new firm:

sta-wealth-management-logo-380x82

The title question dominated my inbox last week. I almost got to the point of just cutting and pasting answers to emails for the sake of expediency. However, I personally responded to each and every one as always. Last week I specifically stated that:

“The KEY POINT here is that the market is likely oversold enough to warrant a bounce next week that could be fairly substantial. This bounce will provide the media bulls with ammunition that the short term selloff is over and the ‘bull is back in charge’ through the end of the year. Therefore, the currently rally continues to MOST LIKELY be an opportunity to reduce portfolio allocations and reduce risk.

Last week I posted a chart showing the deeply oversold condition of the market.  These ‘oversold’ conditions act like ‘fuel in a gas tank’ for the markets. Market corrections lead to a pent up demand of buyers, and an exhaustion of sellers, which facilitates sharp reversions. The chart below is the updated DAILY chart from the last two weeks. I have left the previous markings which details the previous oversold condition so that you can see that the very small rally last week has already consumed much of the ‘fuel’ already.”

lance-2013-sep-15-chart-1

Now that we are back to much OVERBOUGHT conditions there is likely not much room left to the current rally. The fact that this rally has not broken out to new highs, which it has done every time before, is also concerning.

However, as I also stated last week:

Again, this is just a “wild @$$ guess” at what I think the markets will do based on current price trends, support and resistance points. Anything is possible and portfolio management actions will have to be adjusted accordingly as the market develops.

Again, I cannot restate enough, the issuance of the “confirmed sell” signal is NOT a sell everything and run to cash type of thing. It is simply a signal that suggests that the current market is going through a corrective phase and that we need to reduce our equity risk accordingly, raise some cash, and be prepared to act on the next buying opportunity when it presents itself.

As long term investors, and portfolio managers, our goal is simple “buy low” and “sell high.” If we don’t sell some things along the way, maintain our portfolios and pay attention to our money – inevitably we will wind up making decisions based on “panic” rather than “logic.” Unfortunately, emotionally based decisions rarely work out well.

Pay attention the market over the next couple weeks and reduce allocation models accordingly.”

While the “bounce” exceeded previous expectation levels, due to a greater impact of short covering than anticipated, the rise did allow for portfolios to be realigned fully with our target allocation model. However, did this short term rally reverse the intermediate term “confirmed sell signal” issued two weeks ago? The chart below shows the market versus the confirming buy/sell signal.

What is important to notice is that following the previous selloff in the market – stocks reached a new closing high as they entered overbought territory. This followed a 110 point rally in the index. From that point to the next closing peak was only 40 points. However, NO SELL SIGNAL was ever issued.

There are two primary differences currently:

1. A confirmed sell signal was issued two weeks ago. That signal is still in place and has NOT been reversed.
2. The market has now returned to being overbought without the market attaining a new high close.

This suggests that the market, despite the oversold bounce over the last two weeks, is still likely in a corrective phase. Until the market breaks out to a new high and the confirmed sell signal is reversed investors should err to the side of caution.

That DOES NOT mean sell everything and go hide in cash, buy gold, ammo and can goods, or build a bunker in your backyard. It just simply means that you should pay attention to your hard earned savings.

Since the sell signal has not been reversed we remain allocated at 75% of our target allocation. When the sell signal is reversed we will recommend upping portfolio exposure accordingly.

lance-2013-sep-15-chart-4

In this regard, for new readers, I have updated the portfolio management instructions from the past two weeks.

1) The S&P 500 found resistance at 1690 last week. If the market is able to rally on Monday due to the “just reached deal on Syria” above that resistance level – old highs will be the next target.

2) As stated above; review your current holdings and ask yourself “why” you own a specific position. If the position in underperforming, and the only case you can make for owning it is “well, ‘soandso’ on TV said it was a good idea,” then this is a good position to sell. Such positions would currently include gold and emerging markets.

Positions that lag when markets are rising tend to fall faster than the market during the decline. Therefore, if you don’t really understand why you own it – get rid of it now.

3) Positions that are pacing, or outperforming, the market as a whole should be kept but reduced now to raise cash and reduce portfolio risk. Positions that outperform on the way up tend not to fall as fast as the market on the decline, however, they will decline. Take some profits.

4) All funds in a given category (growth, value, large, mid, small, etc.) all tend to track the broad market index fairly closely. Therefore, use the rally to consolidate the 3-5 large cap funds in your portfolio into a single holding. The same goes for mid-cap, small-cap, international, etc. Diversification is not about the number of funds that you own but the non-correlation between the various assets. You can have a fully diversified portfolio with just 3-5 funds in total.

5) Do not rely solely on other people’s opinions – including mine. I take a lot of time, do a lot of research and analysis, in order to come to my opinion – but it is JUST an opinion. Take some responsibility for YOUR SAVINGS and learn what you are investing in and why. Too many individuals invest in the financial markets with no real interest, understanding, or desire to learn about what they are doing. They only invest in the financial markets because they are told they must. There is no requirement you invest at all.

As a I discussed last week that is a good chance that my current assessment of the market is wrong. It is for this very reason that I continue to closely monitor the markets utilizing a variety of different tools, economic, fundamental and technical, to make decisions. It is also why we have changed the way that we manage portfolios so that we can be more responsive to a market that is moving faster, is more volatile, and is more manipulated by major firms than ever before.

If my current assessment of the market is wrong – that is actually good. It will mean the markets are rising and we can increase our allocation in our portfolios back up to full exposure. If I am right – then our cautious stance as of late will pay off as our portfolios will outperform the broader market indices.

However, if I am wrong, I will change my view. At the current time, however, there is nothing that suggests my current view is wrong but that could change next week.

A Listing Of Headwinds

There is a litany of issues currently facing the markets and the economy ahead. Here are a few:

  • Syria: While there has been a tentative agreement between Syria, the U.S. and Russia, to destroy Syria’s arsenal of chemical weapons – the reality is that this is the same “dog and pony” show we witnessed with the WMD inspectors in Iraq. Syria will agree to comply up front and then move their weapons to other locations subsequently such as Iraq and Lebanon. Theywill only allow the U.N. inspectors to “see what they want them to see” and“compliance” will be nothing more than an act. This is assuming the Syrian rebels will even let the inspectors into the country. The reality is that in the next few months we will likely be once again talking about limited strikes in Syria.
  • Debt Ceiling: We are once again facing the dreaded “debt ceiling debate” where the issues will be increases in spending combined with increases in taxes. What will be critical to the markets is whether, or note, the “debt default” card is once again played. While the government will NOT default onits debt, as they can print currency to pay obligations, the rhetoric will be anegative for the market.
  • Eurozone Elections: Angela Merkel is up for re-election in Germany and it is currently estimated that it will be an easy victory for her. However, we have seen such proclamations go awry before and a defeat could cause concerns throughout the Eurozone.
  • Interest Rates: The recent surge in interest rates, as shown in the first chart below, is not unprecedented during QE programs. However, it is not just in the U.S. that rates are increasing. European bond spreads are surging as well (second chart below).

    Increases in borrowing costs negatively impact economic growth. This is true for both the U.S. and the very weak Eurozone economies. Importantly, the recent surge in interest rates has not yet completely worked their way into the economy. This means that we are likely to see further economic weakness going into the end of the year.

lance-2013-sep-15-chart-5

lance-2013-sep-15-chart-6

  • Economy: The economy seems to be showing some short terms signs ofrecovery on some fronts. However, at the moment, these bounces in the data appear to be nothing more than just “restocking” activity given the weakness seen in the consumer spending and confidence data. Higher rates will have a negative impact, as discussed above, on consumption which will be reflected in a slowing of economic growth through the end of the year.
  • Earnings / Revenue: As discussed recently corporate earnings appear to be peaking as cost cutting has likely reached the limits of its effectiveness. As shown revenue growth remains extremely weak. This is reflective of the sluggish economy and consumer and will be difficult for the market to continue to justify current valuation levels.

lance-2013-sep-15-chart-7

  • The Fed “Taper:” The market is trying to come to grips with the reality that the Fed is likely to begin tapering their bond purchases soon. The belief is currently that the economy is now able to sustain itself with reduced Federal Reserve assistance. Mohammed El-Erian summed this up well:

“As much as we wish for otherwise (particularly in view of the most positive high-frequency data), there is still not enough evidence to conclude that the U.S. economy will be able to emerge decisively
and durably from its low growth equilibrium in the next few quarters. The impact of sluggish domestic components of aggregate demand is compounded by declining growth in emerging economies, insufficient structural reforms and public infrastructure investments, and stubborn residual pockets of excessive leverage – all of which limit the expansion propensity of corporate America, the one component of the private sector with the wallet (but not the will as yet) to spend.

Congressional political polarization is not helping the outlook for a high and durable fundamental U.S. recovery. At a time when the economy needs a tailwind from Capitol Hill, lawmakers risk creating renewed headwinds when they finally turn their attention to steps to keep the government running and lift the debt ceiling.

As for the Fed, we should all hope for “good” reasons for it to taper – meaning that the central bank has strong reasons to believe that the U.S. economy is approaching “escape velocity.” But the Fed could also taper for “bad” reasons – that is to say that its prolonged experimentation with unconventional monetary policy threatens to create too much collateral damage and unintended consequences (including concerns about misallocation of resources, excessive risktaking and damage to the functioning of certain markets).

In all likelihood, the Fed will taper for a mix of reasons. Specifically, it will likely be comforted by the notion that the American economy continues to heal, but also frustrated by the gradualism of the recovery and the threat of collateral damage. Meanwhile, look for the Fed to try to compensate the potential contractionary impact of tapering by evolving its forward guidance policy.”

  • Eurozone: As discussed above the rise in interest rates will ultimately impact the solvency of the Eurozone countries who have done nothing to begin to repair their balance sheets. More needs for bailouts are likely coming sooner than expected and the real question is will the ECB have enough money on hand, and cooperation from Germany in particular, to continue to solve the financial issues going forward.

Market Rally To Nowhere

There is simply one thing that is more important to remember than any of these other short term events – the market rally could certainly go further, however, it will also eventually end.

The chart below is a 113 year, inflation adjusted, chart of the S&P 500.

lance-2013-sep-15-chart-8

There are three things to understand:

1) Return on investment is SIGNIFICANTLY impacted by WHERE you started investing during a given cycle.

2) All market rallies eventually corrected and all corrections eventually ended. What made the difference over the long term was not catching the declines.

3) Believing that “this time is different” is a fool’s dream that always turns into a nightmare. Every secular bull market was believed to be different.

The technical indicators currently suggest that the market is likely approaching the end of the current oversold rally. This is does not mean that the markets cannot attain a new high. It is certainly possible. However, the economic and fundamental cycles are now very long into normalized recoveries which suggest that we are nearer the end of the current cycle than the beginning.

Previous Post

Keynesian Fed’s Stick Heads Up Orifice And Markets Rise

Next Post

The Music Industry is First to Arrive in the Digital Age

Related Posts

Weaker Dollar Keeps Bitcoin Above $30K As Analysts Target 60% BTC Dominance
Economics

Weaker Dollar Keeps Bitcoin Above $30K As Analysts Target 60% BTC Dominance

by John Wanguba
May 20, 2022
Ethereum Developers Tip The Merge Might Happen In August ‘If All Goes As Planned’
Business

Ethereum Developers Tip The Merge Might Happen In August ‘If All Goes As Planned’

by John Wanguba
May 20, 2022
Commonwealth Bank Puts Crypto Trading Test On Ice As Regulators Hesitate
Business

Commonwealth Bank Puts Crypto Trading Test On Ice As Regulators Hesitate

by John Wanguba
May 20, 2022
Musk Hints He Could Reprice Twitter Deal As He Looks At Fake Accounts
Business

Musk Hints He Could Reprice Twitter Deal As He Looks At Fake Accounts

by John Wanguba
May 18, 2022
Madonna Joins Hands With Digital Artist “Beeple” To Launch New NFTs
Business

Madonna Joins Hands With Digital Artist “Beeple” To Launch New NFTs

by John Wanguba
May 18, 2022
Next Post

The Music Industry is First to Arrive in the Digital Age

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins banking Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business Coinbase crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi digital assets Elon Musk ETH Ethereum Ethereum blockchain finance funding government investment market analysis Metaverse mining NFT NFT marketplace NFTs nonfungible tokens nonfungible tokens (NFTs) price analysis regulation Russia social media technology Tesla the US Twitter

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Weaker Dollar Keeps Bitcoin Above $30K As Analysts Target 60% BTC Dominance
  • Ethereum Developers Tip The Merge Might Happen In August ‘If All Goes As Planned’
  • Commonwealth Bank Puts Crypto Trading Test On Ice As Regulators Hesitate

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish