CMG Capital Management Group Mid-Week Market Snapshot
By Steve Blumenthal, CIO, CMG Capital Management Group
The S&P 500 is down nearly 10% from its September high of 2019. I’m going to tilt back the risk meter just a bit as investor sentiment is now at levels of extreme pessimism and the market is testing some technical support.
On the concern list: QE is ending this month and Europe, Japan and China are in decline (with recession in Europe), commodities are in a steep sell-off (signaling global economic weakness), war risk and add Ebola. We know risk to be elevated – whether a short-term market scare or the beginning of another crisis remains to be seen.
The big positive is that investor sentiment is at Extreme Pessimism especially as seen in the Daily Sentiment data. We are near some reasonable technical support and should see a rebound. The sell-off should not come as a surprise though it is never pleasant. Overall, I favor a disciplined game plan with quarterly or yearly rebalancing and strategy shifts based on potential forward opportunity.
In my more than 20+ years of trading the intermediate trends in the High Yield space, this is the first time we have traded in then out in one week. We moved back to short-term money market exposure and/or Treasury Bill (ETF “BIL”) yesterday – highly unusual. Not sure if this means anything or not. I’m just sticking to the process.
The Zweig Bond Model remains in a buy and bonds are doing very well. I’m not sure how much room remains on the upside but here too I favor sticking to the process to determine core bond exposure.
If your equities are hedged and your portfolio includes good tactical strategies (and other liquid and more flexible return drives), then the storm should be weathered with far less emotional and financial indigestion. If you are John Bogle with millions and a solid buy-and-hold no matter what conviction, then stay the course. Frankly, I don’t think most people hold that depth of conviction. Evidence suggests otherwise and it’s why many other experts favor broad portfolio diversification.
Keep a close eye on Big Mo and the 13/34-week EMA. In regards to total portfolio construction, I favor 30/30/40 with the 30% to equities hedged, 30% to fixed income flexibly managed due to low interest rates and 40% to tactical and alternative strategies. Within that last category, I favor a 10% allocation to precious metals.
I’ve been advocating “own equities but hedged” and “overweight to tactical strategies” for some time. To that end, our tactical strategies are performing as we hoped. I know several of the large tactical shops are not doing well. Diversify.
See the full story and important disclosures at Trade Signals – Market Support Targets – Sentiment at Pessimistic Extreme.
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.