CMG AdvisorCentral

Tactical investing news, views and resources for financial advisors

Archives for September 2017

Trend Following – Two Actionable Ideas

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In the “what can you do about it” category, here are a couple ideas to think about.

Let’s look at two very simple trend following ideas.

Most of us are familiar with the 200-day moving average (MA).  It is simply a smoothing of the average price of, for example, the S&P 500 Index over the last 200 days.  Take all the daily closing prices, add them up and divide by 200.  It creates a smooth trend line that enables you to see if the trend is moving up or moving down.

In an uptrending period, the average price is moving higher.  In a downtrend, it is moving lower.  Investors can use the trend as an indicator as to when to be invested and when to hedge or get out of the market.  But one needs to have a rule to trigger a signal.  It’s one thing to see the trend line moving higher or lower, but it is another to know when to act.

One of the more popular trading indicators is called the “golden cross.”  It is when the 50-day MA price line (the shorter-term trend) crosses above or below the 200-day MA price line (the longer-term price trend).  A buy signal when it crosses above.  A sell signal when it crosses below.

Click below for the models and charts…

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Volatility: Calm Before the Storm?

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August and September are the two worst performing months for stocks each year.  You wouldn’t know it from the relative calm in the market.  From Bloomberg’s David Wilson, “This month’s pattern of calm for U.S. stocks persisted even after Federal Reserve officials laid out plans to begin selling some of the central bank’s bond holdings. The CBOE Volatility Index, or VIX, is headed for its lowest daily average in any September since calculations began in 1990.  Wednesday’s 0.4-point decline in the VIX, to 9.78, as the Fed announced the monetary-policy shift.”  The all-time low was in early 2007 at 9.39.  Readings below 10 are rare.

Here is a look at the VIX Volatility Index since 1999.  Imagine the calm confidence that set over the market in 2007.  VIX measures perceived risk.  We should get worried when everyone is comfortable and see opportunity when others are in fear.

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Recessions by Decades – Will This be the First Without One?

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Take a look at the recession data in the next chart.  Since 1930, there have been at least one or two recessions every decade.  Three of the post-1930 decades had just one recession and five of the decades had two recessions.  There have been zero recessions so far this current decade.

Will this be the first without recession?  I doubt it very much.  Often I share with you my favorite recession indicator signal charts.  There is no current sign of recession within the next six months.  I’ll keep you posted.  Here are the recessions by decade chart:

Source: Crestmont Research

Let’s continue to keep our eye on leading recession indicators.  The best is an inverted yield curve.  The equity market is also a good leading indicator.  No need to cover this today.