CMG AdvisorCentral

Tactical investing news, views and resources for financial advisors

Archives for June 2016

Trade Signals – Oversold, Extreme Pessimism ST Bullish, Risk High

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CMG Capital Management Group Inc.High Yield hit stop-loss levels and is back to a sell.  Investor pessimism moved to extreme.  Such periods of extreme pessimism have historically been short-term bullish for equities.  High-quality bonds remain in a buy signal.  The equity market uptrend remains in place (though weakening).  The CMG Ned Davis Research Large Cap Momentum Index continues to suggest caution.

Managed futures funds performed well through the Brexit crisis.  The theme remains the same: equity valuations are high, fixed income yields are low.  Include a portfolio weighting to flexible/unconstrained strategies, such as tactical fixed income, tactical equity and liquid managed futures.

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CMG On Brexit

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BrexitExcerpt of letter sent to CMG clients Friday on Brexit:

While it would be foolhardy to predict the details of what happens after the United Kingdom voted to leave the European Union, we wanted to address the potential impact of this unprecedented and historic vote. With global valuations already stretched and growth tepid and declining, the amount of uncertainty that the vote has brought into the market can have a significant impact and knock-on effect on financial markets and global politics.  Below are our insights on what may come next.

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Look For High Yield Opportunity Ahead

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CMG Capital Management Group Inc.HY moved back to a buy signal early this week. The asset class tends to be a leading indicator of both economic and stock market direction. We had a great run and we are pleased. Right now, the signal is for more “risk on.”

However, much of our return was gained by the sell-off in the second half of last year. Note in the following chart how yields (as compared to Treasury Notes) rose sharply to nearly 9%. Sidestepping the losses in price (when prices sell off, yields rise) and subsequently buying back in at a lower price and higher yield proved profitable.

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CMG Mid-Year Market Review

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CMG Capital Management Group Market AnalysisNearly halfway through 2016, most of the issues we faced at the beginning of the year remain today.  With little overall market movement, the two most popular averages, the S&P 500 and DJIA, are little changed on the year – both up a small yet positive 1.5%.

The S&P 500 is lower than it was in December 2014.  Perhaps not so coincidentally, the Fed ended QE3 in October 2014.

At the same time, the global central banks continue to message, we’ve got your back, yet there are signs our collective faith in their power is waning.

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ETF.com Portfolio X-Ray of CMG Opportunistic All Asset Strategy

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ETF.comETF.com Writer Cinthia Murphy looks at the portfolios of select ETF strategists. Cinthia does a “Portfolio X-Ray” of the CMG Opportunistic All Asset Strategy. Cinthia speaks to CMG CEO Steve Blumenthal about the primary goal, methodology, target client, and asset allocation breakdown of the strategy. There are currently 10 ETFs in the portfolio. The portfolio allows a maximum of 11 ETFs. See the full story in ETF.com.

Trade Signals: Gold Shines, HY Sells, S & P Lags

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CMG Capital Management Group Inc.S&P 500 Index 2071 (6/15/2016)

You’ll see in the indicators below that gold continues to perform well and remains in a defined cyclical uptrend.  High yield moved to a sell signal early in the week.  This was after a strong short-term performance gain.  The fundamental outlook for high yield bonds remains challenged.  We are currently positioned in Treasury bills.  We expect defaults to increase sharply in the next recession.  We favor tactical trend-following and setting stops to protect principal.

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The Market Is Richly Priced

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CMG Capital Management Group Market AnalysisMedian PE was at 23 at May 2016 month-end.  That is higher than it was in 2007.  The notable exception was in the late 1990s and early 2000s following the tech bubble.  While PE is a poor timing measure, it is a very good estimate of forward returns.

This chart shows the S&P 500 Index to be -27.2% away from fair value.  It also looks at standard deviation moves.  A 1SD move happens but not often as you can see in the history dating back to 1966 (red line in the lower section of the chart).  Given the May close in the S&P 500 Index at 2,096.96, this chart shows the market to be 4.9% overvalued.

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S & P Nearing All Time High

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CMG Capital Management Group Inc.June 8: S&P 500 Index 2119. At the time of this writing, the S&P 500 Index is 15 points away from making an all-time high (amen to that).  Are you as curious as I am as to how the current bull market compares to prior bull runs?  In a word – “aged.”  The following chart caught my eye.

It shows the length and point gain of the DJIA’s current bull market run and compares the current move (which began in March 2009 – blue line) to a composite of prior bull market moves (red line), as defined by Ned Davis Research.

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