CMG CAPITAL MANAGEMENT GROUP
MID-WEEK MARKET REVIEW
By Steve Blumenthal, CIO, CMG Capital Management Group
Technical evidence remains positive. Big Momentum (“Mo”) is in a buy signal since October 14, 2011 and trend evidence (as measured by the 13/34-Week EMA (see chart below) is positive.
Investor sentiment has moved quickly from Extreme Pessimism to Extreme Optimism. This is neutral at best with such optimism suggesting caution.
I remain modestly bullish on equities (hedged) and remain bullish on both high yield bonds (uptrend) and high grade bonds (uptrend as measured by the Zweig Bond Model).
13/34-Week EMA – The cyclical bull market’s uptrend remains in place. Note the blue 13-Week EMA line remains above the red 34-Week EMA line. Also note how well this simple, tactical trend indicator has historically captured the cyclical bull and bear market trends. Signals occur when the lines cross.
In summary, both Big Mo and the 13/34-Week EMA suggest that the market remains in a cyclical bull market (up trending) state. Sentiment (as seen in the next few charts) remains optimistic (which is bearish).
As long as Big Mo and the 13/34-Week EMA remain bullish, buy the dips and own equities (but hedged).
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. A bullish trend occurs when the blue line is above the 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.
For hedging, I favor a collared option approach (writing out of the money covered calls and buying out of the money put options) as a relatively inexpensive way to risk protect your long-term focused equity portfolio exposure. Also, consider buying deep out of the money put options for risk protection.
Please note the comments at the bottom of this Trade Signals discussing a collared option strategy to hedge equity exposure using investor sentiment extremes is a guide to entry and exit. Go to www.CBOE.com to learn more. Hire an experienced advisor to help you. Never write naked option positions. We do not offer options strategies at CMG.
See the full story and important disclosures at Trade Signals – Good News And Bad News (Mostly Good)
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.