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.
As for the equity market, the cyclical trend remains positive. I continue to suggest equity exposure (but hedged due to the age of the bull move and current overvaluation).
A quick aside: I was recently asked what we are seeing in our various tactical equity – all asset strategies. Our global tactical rotation ETF strategy remains invested in the S&P 500 Index ETF (SPY) and the Vanguard REIT ETF (VNQ). Those two ETFs are showing the strongest relative strength over commodities (DBC), international equities (EFA), aggregate bonds (BND) and treasury bills (BIL). Within our various tactical equity strategies, we are seeing favorable sector momentum in healthcare, pharmaceuticals, technology and REITs. Large cap continues to outperform small caps.
13/34-Week EMA Trend Chart: Cyclical Bullish Trend for Stocks Remains
Following is a look at the S&P 500 index 13-Week (blue line) vs. 34-Week (red line). Bull and Bear market cycles are clearly defined. Bullish trend when blue line is above red line. EMA or exponential moving average is used. EMA is a type of moving average that is similar to a simple moving average, except that more weight is given to the latest data.
See the full story and important disclosures: Trade Signals – Trend Positive, Sentiment Remains Too Optimistic
Steve Blumenthal is CEO and Chief Investment Officer of CMG Capital Management Group. CMG manages tactical portfolios and strategies for advisors, individuals, and institutions. The objective behind all of Mr. Blumenthal’s work is to help advisors build better portfolios by allocating with a long-term game plan that is risk sensitive and properly diversified. Mr. Blumenthal is a self-proclaimed “quant geek,” with an analytical mind for the markets that helps him connect with everyday investors and industry experts alike.
