Archives for August 2016

Trade Signals – Overvalued, Sentiment Remains in Bullish Extreme (S/T Bearish for Stocks), Cyclical Bull Uptrend

Posted on 08.31.16 |

With a nod towards broad portfolio diversification, following is a quick summary of what I am seeing this week — organized by investment category (equity markets, fixed income and liquid alternatives):

Equity Markets: The weekly Ned Davis Research (NDR) investor sentiment remains extremely optimistic (short-term bearish for equities). The daily sentiment indicator is now neutral from extreme optimism (neutral for equities). At this time, there’s more buying demand vs. selling supply (a bullish signal), the market trend remains positive. Don’t Fight the Tape or the Fed moved recently from a +1 to 0 (now neutral on equities). The 13/34-Week EMA trend indicator remains bullish. The CMG NDR Large Cap Momentum Index is nearing a buy signal. Valuations, which we’ll look at again in this Friday’s On My Radar, remain extreme (overvalued), so while trend evidence suggests a neutral to positive view on equities, I continue to favor an underweight exposure to equities and hedge.
Fixed Income: HY remains in a buy signal or uptrend and the Zweig Bond Model remains in a buy (bullish on high quality fixed income). We see “JNK” and “PCY” exhibiting the strongest relative strength in fixed income (this from a universe of nine ETFs ranging from short-term and long-term Treasury bonds, corporate bonds, munis, high yield, emerging market, inflation and developed market bonds). It’s been a good year for bonds.
Liquid Alternatives: Gold (“GLD”) is testing support at 125. The CMG Opportunistic All Asset ETF Strategy is currently allocated approximately 81% to equities and 19% to fixed income. We allocated to “IYF,” a U.S. Financial ETF in the last week, trading out of “BND,” a bond ETF. Emerging markets and technology continue to show strong price leadership. Biotech has had a tough week.

For charts, analysis, and commentary see the rest of the story in Trade Signals – Overvalued, Sentiment Remains in Bullish Extreme (S/T Bearish for Stocks), Cyclical Bull Uptrend.

The current opinions and forecasts expressed herein are solely those of Steve Blumenthal and are subject to change. They do not represent the opinions of CMG. CMGs trading strategies are quantitative and may hold a position that at any given time does not reflect Steve’s forecasts. Steve’s opinions and forecasts may not actually come to pass. Information on this site should not be used as a recommendation to buy or sell any investment product or strategy.

The slow, long expansion

Posted on 08.29.16 |

A client asked me how economic growth post the great financial crisis compares to other prior periods. I did some digging and found this from Ned Davis Research, “Currently in its eighth year of growth, this expansion is the fourth longest of the postwar period. Early next year it will be number three. The longest expansion was ten years, which ended in March 2001 and encompassed the technology boom.”

Here is a look at the data from 1947 to present:

Anatomy of Post War Economic Expansions 03/1947 - 07/2016

Trade Signals For Equities, Fixed, Liquid Alts

Posted on 08.25.16 |

CMG Capital Management Group Inc. With a nod towards broad portfolio diversification, here is a quick summary of what I am seeing — organized by investment category (equity markets, fixed income and liquid alternatives):

Equity Markets: Investor sentiment remains extremely optimistic (short-term bearish for equities), Don’t Fight the Tape or the Fed moved recently from a +1 to 0 (now neutral on equities). The 13/34-Week EMA trend indicator remains bullish. The CMG NDR Large Cap Momentum Index is nearing a buy signal. While valuations remain extreme (overvalued), trend evidence suggests a neutral to positive view on equities (hedged).
Fixed Income: High Yield remains in a buy signal or uptrend and the Zweig Bond Model remains in a buy (bullish on high quality fixed income).
Liquid Alternatives: The CMG Opportunistic All Asset ETF Strategy is currently allocated 73% to equities and 27% to fixed income. Recent additions include technology, biotech and Emerging Market equities. For weightings by asset class, please see the pie chart below.

Several additional thoughts: Investor sentiment remains extremely optimistic (which is generally short-term bearish for equities). Due to high valuations and the aged nature of the cyclical bull market, I favor underweighting exposure to equities (hedged). I favor an endowment-like portfolio with approximately 30% exposure to equities (hedged), 30% fixed income (tactically managed) and 40% to liquid alternatives (e.g., tactical all asset, managed futures, global macro and gold).

Here is a not-so-fun fact: According to Ned Davis Research, the S&P 500 has gained just 2.41% annualized per year since December 31, 1999 (see Don’t Fight the Tape or the Fed indicator below). It has gained just 4.45% annualized per year since December 31, 1997 (see Volume Supply/Demand indicator below)…. by Steve Blumenthal

For charts, analysis, and commentary see the rest of the story in Trade Signals: Sentiment Too Bullish: S&P 500 Annualized Return Since 12/31/99 to Present just 2.41% (Wow!)

Everyone Is In The Dark

Posted on 08.22.16 |

CMG Capital Management Group Market Analysis When it comes to research, I favor managers with skin in the game. Paul Singer is one of those managers. His firm, Elliott Management, manages $28 billion in assets, making it one of the world’s largest hedge funds. Years ago, in my hedge fund days, we had an investment in his fund. He is smart, experienced and seasoned.

Singer warns that the bond market is “broken” and that when the central bank actions of recent years no longer ward off a market downturn, the subsequent loss of confidence could be severe. Singer states, “Trading in this market is particularly difficult…. Everyone is in the dark.” He continues, “Experience doesn’t count for much, and extreme confidence may be fatal.”

My mantra has been to own equities but with some downside hedge in place. Almost one-half of the Western world’s outstanding sovereign debt—$12.6 trillion worth—traded at negative yields last week, according to the Financial Times. With economics, “no government can play god.” We’ll find out soon enough.

For charts, analysis, and commentary see the rest of the story in On My Radar: “In the Realm of Economics, No Government Can Play God.| By Steve Blumenthal |

Trade Signals for Equity, Fixed, Liquid Alts

Posted on 08.18.16 |

CMG Capital Management Group Inc. A quick summary of what we are seeing by investment category (equity markets, fixed income and liquid alternatives):

Equity Markets: Investor sentiment remains extremely optimistic (short-term bearish for equities), Don’t Fight the Tape or the Fed moved from a +1 to 0 (now neutral on Equities). The 13/34-Week EMA trend indicator remains bullish. The CMG NDR Large Cap Momentum Index is nearing a buy signal. Neutral to positive on equities.
Fixed Income: HY remains in a buy signal and the Zweig Bond model remains in a buy.
Liquid Alternatives: The CMG Opportunistic All Asset ETF Strategy is taking on more risk. Recently, we increased allocations to technology and biotech. Yesterday, we sold out of short duration bonds (“MINT”) into Vanguard Total World Stock ETF (“VT”).

What Would Janet Do?

Posted on 08.16.16 |

Janet Yellen Let’s take a look today at just how attractive U.S. interest rates are relative to most of the world. To wit, the title of this week’s On My Radar piece, “The Best Looking Dude at the Dance.” Who in their right mind could have imagined that 1.50% would be attractive? We’ll look at the comparisons today and consider the implications. Lower for longer? Dr. A. Gary Shilling says yes. I’m getting concerned that too many are now in that camp (yours truly among them).

The bond market seems to have forgotten last Friday’s strong employment report. The worry about “What Would Janet Do” (raise interest rates) has subsided. The yield on the 10-year Treasury jumped from 1.49% to 1.58% back down to 1.50%. What is this telling us? One thing that’s apparent to me is that the global capital flow advantage goes to the U.S.

Market Today Feels Like 1997

Posted on 08.12.16 |

CMG Capital Management Group Inc. Technically, the S&P 500 Index looks strong. The price trend, as measured by the 13/34-Week MA (posted below) turned positive in late March 2016. My favorite “weight of evidence indicator,” the CMG Ned Davis Research Large Cap Momentum Index, is nearing a buy signal.

Further, the “Don’t Fight the Tape or the Fed” indicator is in a favorable equity market signal and Volume Demand (buyers) continues to be greater that Volume Supply (sellers). You will find the charts below.

Trend Following Works!

Posted on 08.07.16 |

2016-08-07 We will look back and identify this market as one of the most reckless financial bubbles of all time. We will look back and identify the next correction as one of the greatest buying opportunities of all time.

Investors are expecting their advisors to deliver 10% returns. There will be disappointment. A lot of money is going to be in motion. I favor a broad-based, holistic asset diversification. Include strategies that may gain in both bull and bear markets. Own some gold. Risk protect that equity exposure and stay tactical with your high yield bond exposure. Robo-like 60/40 is in trouble.

Trend Following Works! Learn more about trend following here. Ahead, I see it as a great opportunity for you and your business. See more advisor investing education pieces in the Advisor Resource Center. By Steve Blumenthal

The Reality of Forward Returns

Posted on 08.07.16 |

Today, let’s take a look at the most recent market valuations and what they are telling us about forward returns over the next ten years. But keep in the back of your mind that you can get pretty close on seven and ten-year return probabilities but it is a coin flip on what the equity returns will be over next number of months.

We do know that the insatiable demand for stocks with above average yield is causing valuations to diverge materially from historical norms. This may continue. In a recent State Street poll, investors were asked what their returns expectations are for the next five years and beyond for real estate, commodities, equities and bonds.

Zweig Bond Model A Buy

Posted on 08.06.16 |

I noted several weeks ago that investor sentiment had reached a bullish extreme. Such readings are generally short-term bearish for equities. With the stock market down seven days in a row, investor optimism has declined but still remains excessively optimistic. The best returns come from points of extreme investor pessimism: Here is what I mean (yellow shading marks the current reading):

source: Ned Davis Research