Cyclical Equity Market Trend: The Primary Trend Is Bearish for Stocks
CMG NDR Large Cap Momentum Index – Sell Signal – The Momentum and Market Breadth Data is reading Bearish for U.S. Equities (last signal was on June 30, 2015 with the S&P 500 Index at 2063.11). This is my favorite risk on/risk off equity market indicator.
N = a sell signal or get neutral on your equity exposure. B = a buy signal (Next buy signal trigger is at approximately 65.72. Middle section of chart). Performance attributions are in the bottom of the chart. Tested is the period from 1991 to present. See important disclosures below. CMG, NDR
How I use the CMG NDR Large Cap Momentum indicator: We run several strategies here at CMG. In one of our strategies, we invest in a low-fee large-cap S&P 500 index ETF on buy signals and we switch to BIL (a short-term Treasury Bill ETF) on sell signals. We also run a long/short strategy based on the same signal. Further, when the indicator is in a sell signal, it helps us identify periods where we should be more mindful of hedging our long-term focused equity holdings. Here out-of-the-money put options on an ETF, such as SPY, may be prudent.
Separately, we run several well-known ETF tactical strategies. Our tactical equity strategies look at relative strength that compares stocks, bonds, sectors, cash, etc. and seek to position in the assets showing the strongest price leadership. Such strategies tend to move away from areas of greater risk (like equities) to less risk areas (like bonds and cash) and do so based on the rules built within each strategy. Sometimes, our CMG NDR indicator may be in a sell signal yet our tactical equity strategy may still have an overweight exposure to equity-oriented funds or ETFs.
As markets don’t generally tsunami overnight (though it can happen), historically, they tend to peak and change trend over months, not days. Most corrections are in the 5% to 10% range with the sizable corrections tending to occur during periods of recession. So with this thinking, I believe that portfolios should be broadly diversified to include a number of potential return drivers (let’s call each one separately a risk). Thus, in my view, portfolios are a collection of various different risks.
The current opinions and forecasts expressed herein are solely those of Steve Blumenthal and are subject to change. They do not represent the opinions of CMG. CMGs trading strategies are quantitative and may hold a position that at any given time does not reflect Steve’s forecasts. Steve’s opinions and forecasts may not actually come to pass. Information on this site should not be used as a recommendation to buy or sell any investment product or strategy.