The long-term models, CMG Ned Davis Research (NDR) Large Cap Momentum Index and 13/34-Week EMA, inform our long-term market outlook. The primary trend remains negative. The long-term signals guide our cautious view on the market. Hedge equity exposure and raise some cash on rallies.
Mohamed El-Erian is suggesting 25% in cash. I’m not suggesting that much, but we should take note of his reasoning. I favor using our CMG NDR Large Cap Momentum Index to have a systematic process in place that does it for us.
For example, let’s say you allocate 10% of your portfolio to U.S. Large Cap stocks. On sell signals, you position from cash to a shorter-term bond fund ETF like “BIL.” On buy signals, you position back to an equity market ETF like “SPY” or Vanguard’s “VOO.” Thus, creating a disciplined way, within your long-term overall investment plan, to decrease and increase equity market exposure as part of your overall plan.
Shorter-term based trend indicators are positive. The rally has been a relief with investor sentiment now neutral and nearing excessive optimism. The high level of extreme pessimism (which is short-term bullish) is now behind us. I’d use the rally to raise cash and/or hedge equity exposure (or find funds that do it for you).
Keep in mind that the average bull market lasts less than 59 months. This one is 84 months old. (For the record, the longest bull market stretched from October 1990 to March 2000).
Most predicted the Fed to remain on hold and not raise interest rates and they didn’t surprise. The S&P 500® has recaptured its 50-day moving average and today its 200-day moving average line though the shape of those trend lines continues to point lower. The S&P 500® Index rose above initial resistance at 1950 and then again at 2000. The next level is 2030-2050 followed by 2100.
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.