CMG AdvisorCentral

Tactical investing news, views and resources for financial advisors

Indicators Still Bullish For Stocks And Bonds

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CMG Capital Management Group Investment Risk Meter

Prevailing Trend Still Bullish For Stocks And Bonds – But Risk is High

By Stephen Blumenthal, CEO, CMG Capital Management Group

The market feels heavy and the “sell in May and go away” seasonality issues are immediately in front of us.  Although aged the overall trend remains positive as measured by Big Mo, 13/34-Week EMA and because volume demand continues to be stronger than volume supply (more buyers than sellers). “Don’t Fight the Fed” remains an important theme (at least for now).

  • Cyclical Equity Market Trend: The Primary Trend Remains Bullish for Stocks
  • Volume Demand Continues to Better Volume Supply: Bullish for Stocks
  • Cyclical Trend for Bonds Remains Bullish Read More >

Trend Still Bullish For Stocks And Bonds

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Steve Blumenthal, CEO, CMG Capital Management Group

Steve Blumenthal, CEO, CMG Capital Management Group

4/22/2015 Trade Signals: In summary, both Big Mo (Momentum) and the 13/34-Week EMA suggest that the market remains in a cyclical bull market (up trending) state.  I believe trend is most important: therefore, buy the dips (on extreme pessimism) as long as the 13/34-Week Blue EMA line is above the Red EMA line and own equities (but hedged as valuations are high, the market bull is aged; thus, overall equity market risk is high). For charts and explanation see Trade Signals – “Risk On” Trade Remains in Place.

From an investment management perspective, I’ve followed, managed and written about trend following and investor sentiment for many years.  I find that reviewing various sentiment, trend and other historically valuable rules based indicators each week helps me to stay balanced and disciplined in allocating to the various risk sets that are included within a broadly diversified total portfolio solution.

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High Valuations = Low Foward Returns

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Steve Blumenthal, CEO, CMG Capital Management Group

Steve Blumenthal, CEO, CMG Capital Management Group

Stock valuations are high, the financial media has been reporting lately. This is a topic  I examine frequently and it is the subject of my recent weekly commentary On My Radar.

Over the course of the first quarter, Standard and Poor’s lowered its forecast for 2015 earnings from $135 to $112 to $110 per share.  With prices already high relative to corporate earnings, such a trend is not an investor’s friend.

Let’s take a look at current valuations and see what they may tell us about the market’s return over the next ten years.  Hint: it’s very low.  Be prepared to adjust your sails.

The following chart, courtesy of Ned Davis Research, shows the market to be richly priced.  Median P/E is my favorite valuation indicator.

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New York Stock Exchange Hits New High

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New York Stock Exchange Composite Index makes new high.  Other indices near new high’s.

In line with the positive trend in the market, note that the NYSE Composite Index has just made a new all-time high.  It is a much broader index than the S&P 500 or DJIA and includes mid-cap and small-cap stocks which are also hitting new highs.

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Troubling High Margin Debt

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By Steve Blumenthal, CEO, CMG Capital Management Group

Question mark - the trohble with high margin debtI thought about margin debt when I read a quote this week from David Stockman.  David is a former businessman and U.S. politician who served as a Republican U.S. Representative from the state of Michigan (1977–1981) and as the Director of the Office of Management and Budget (1981–1985) under President Reagan.

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Who Benefits From Lower Gas Prices?

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And in Case You’re Wondering Who’s Benefiting From Lower Gas Prices – It’s Restaurants

By Steve Blumenthal, CEO, CMG Capital Management Group

people eating in restaurantPut this chart in the “curious” category.  CNBC has been asking CEO after CEO if lower gas prices are showing up in sales.  The consensus answer is no.  In fact, the latest retail sales data shocked to the downside.  I continue to believe the overriding problem is too much debt.

With gas savings on everyone’s mind, I found this chart in an NDR research report titled, Are Consumers Eating Their Gas Savings?  Anyway, if you were wondering, like me, who might be seeing a pickup in sales it looks to be the restaurant industry (especially domestic restaurants).

 

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Cyclical Trend Still Positive

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CMG Capital Management Group Investment Risk Meter

Trend Positive, Sentiment Remains Too Optimistic

By Steve Blumenthal, CIO
CMG Capital Management Group

Volatility is picking up in high yield. The decline in the price of oil has heightened concern for the survivability of energy related high yield bonds. Our high yield bond strategy hit its stop-loss level and we moved to short-term treasury and money market exposure. In my 20-plus years of trading the trends in the high yield market, I have never traded this much in such a short period of time.

Ahead, I believe, is a major high yield bond and sovereign debt default cycle (2015-2016). The high yield market is a pretty good forecaster of economic and market cyclical trends. Stay defensive and risk focused with high yield. I believe it will enable a 2009-like trading opportunity at some point within the next several years.

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Investment Risk Elevates

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Extreme bullish sentiment, pushes risk arrow farther to the right.

Extreme bullish sentiment, pushes risk arrow farther to the right.

By Steve Blumenthal, CIO
CMG Capital Management Group

Trade Signals, Wednesday Nov. 26, 2014 —  Trend evidence remains positive as measured by Big Mo and the 13/34-Week EMA on the S&P 500. Sentiment is far too bullish, suggesting short-term caution.

Sentiment has reached the extreme bullish state about 28.5% of the time since 1994. The average return is a -10% when such extremes have been reached. The simple message is to be weary of crowds at extremes.

Investment Risk Elevates: Due to current extreme bullish sentiment, I’ve moved the risk arrow farther to the right.

Conclusion: Trend evidence remains positive and don’t fight the Fed or the tape remain the important theme. Own equities (but hedged).

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Valuations And Risk High

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Market Sentiment CMG Capital Management Group

Technical trends remain positive

CMG CAPITAL MANAGEMENT GROUP
MID-WEEK MARKET REVIEW

By Steve Blumenthal, CIO, CMG Capital Management Group

Big Momentum (“Mo”) still says go, yet excessive optimism warns to expect a sell-off. I remain modestly bullish on equities. Buy the dips and own equities but hedged. Risk remains high due to high valuations and the length of the aged bull market.

Positives are interest rates, corporate buy backs and global central bank liquidity.

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