The “Don’t Fight the Fed or the Tape” indicator is showing the strongest reading in some time (+2). The reading has been +1 for a number of months. Note in the following chart that such readings have happened only 5.74% of the time since early 1999. The annual gain per annum was 25.60%. A +2 reading can last for days or months.
To be sure, the chart is not showing that returns will be 25.60% over the coming 12 months, it simply says that it was the average gain over the period of time the indicator was in a +2. If the reading lasts one month and the return over that period was 2.5% (if you annualized that number, your return would be 25% – rough math). In any event, this indicator is saying don’t fight the Fed or the trend in the market.
High Yield (HY) remains in a buy. Despite poor underlying fundamentals, the trend has been positive. Our CMG Managed High Yield Bond Program remains positioned in high yield bond funds. The Zweig Bond Model remains in a buy signal, suggesting exposure to longer-dated high quality bond ETFs. Think of this as it relates to your high quality fixed income portfolio exposure.
Overall, I like to think of portfolio construction as combining a variety of risks. Three buckets: equity, fixed income and tactical/liquid alternatives. Consider the exposure percentages to each bucket then diversify your investments/strategies within each bucket. The goal is to achieve a certain desired return for a certain level of risk you are willing to take.
By Steve Blumenthal | For charts, analysis, and commentary see the rest of the story in Trade Signals: Strength in Health Care, Telecom & Fixed Income.
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.