With a nod towards broad portfolio diversification, following is a quick summary of what I am seeing this week — organized by investment category (equity markets, fixed income and liquid alternatives):
Equity Markets: Investor Sentiment moved from excessive optimism to neutral. The trend remains positive. Supply and demand continues to evidence more buyers than sellers (a bullish signal). Don’t Fight the Tape or the Fed moved from 0 to -1. This next chart shows us why we want to watch out for -2 (an unfavorable trend and unfriendly Fed environment):
The 13/34-Week EMA trend indicator remains bullish. The CMG NDR Large Cap Momentum Index is nearing a buy signal; its model trend line is bullish.
A quick note on the chart above: NDR shows price appreciation and not total return. So, the Buy/Hold + 8.55% Gain/Annum would be higher with dividends added in. That would be more informative; however, since we are comparing the price appreciation in each zone (+2, +1, Neutral (0) as reflected), I believe the data is telling and useful in giving us a sense for which environments suggest more or less risk. Actual returns in each category are higher. A thank you to an astute reader.
Fixed Income: The 10-year Treasury Yield is back down to 1.52%. Money is voting with its pocket… saying the Fed won’t raise rates. The Zweig Bond Model remains bullish on bonds and our HY remains in a buy signal. The underlying HY fundamentals are terrible; however, this is another good example where trend following can be a good friend. We will ride the uptrend until it reverses. Further, we see “JNK” and “PCY” exhibiting the strongest relative strength in fixed income (this from a universe of nine ETFs ranging from short-term and long-term Treasury bonds, corporate bonds, munis, high yield, emerging market, inflation and developed market bonds).
Liquid Alternatives: The CMG Opportunistic All Asset ETF Strategy is currently allocated approximately 81% to equities and 19% to fixed income. We are seeing strong relative price leadership in “EEM” (Emerging Markets), “VT” (Vanguard Total World Stock ETF), “QQQ” and “IYW” (Technology ETFs) and “IYF” (U.S. Financials). Our two fixed income ETFs, “EDV” (Vanguard Extended Duration Treasury) and “TLT” (iShares 20+ Year Treasury Bond), have rallied nicely. Biotech looks to be recovering from the Hillary Clinton statements. For weightings by asset class, please see the CMG Opportunistic All Asset Strategy pie chart below. Gold (“GLD”) looks to have held support at 125. The cyclical trend for gold remains higher as evidenced by the Gold chart you’ll find in the full post (link below).
For charts, analysis, and commentary see the rest of the story in Trade Signals — Sentiment Better, Risk On Remains.
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. CMG’s 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.
