By Steve Blumenthal, CIO, CMG Capital Management Group
Technical trend evidence remains positive. Investor sentiment evidence continues to support a short-term recovery uptrend. The market remains expensively priced, the cyclical bull is aged – risk is high.
Cyclical Equity Market Trend: Cyclical Trend for Stocks Remains Bullish (as measured by NDR’s Big Momentum indicator and separately by the 13/34-Week EMA S&P 500 Index Trend Chart)
As long as Big Mo and the 13/34-Week EMA remain bullish, buy the dips and own equities (but hedged).
Risk management is important for one reason – it enables the power of compounding to work over time. Overcoming a 20% decline requires a 25% return to get back to even. Overcoming a 50% decline requires a 100% return. The deeper the loss, the harder it is and the longer it takes to recover. Sadly, most people don’t know this simple fact.
The timing of the next major correction may be unrecoverable for the oldest of baby boomers nearest retirement. I believe a disciplined approach towards risk should be adopted as the ability to stay the course is enhanced.
Given the historically low yield on bonds, it is important to understand what happens to bonds when interest rates rise. However, for now, the weight of evidence continues to support being positioned in longer-term bonds, bond fund ETFs and/or bond mutual funds.
Interest Rate Gain/Loss Per Every 1% Interest Rate Move
Keep a close eye on Big Mo and the 13/34-Week EMA. Broadly diversify your risks (unless, of course, you want to speculate on large bets). I like 30/30/40 with the 30% to equities (hedged), 30% to fixed income flexibly managed due to low interest rates and 40% to tactical and alternative strategies.
We are living in unusual and highly manipulated times. The global central banks are engaged in a massive monetary experiment. The root problem is too much debt. Some form of risk protection, in my view, continues to make sense.
See the full story and important disclosures at Trade Signals – Trend Still Positive And Sentiment Favorable
Steve Blumenthal is CEO and Chief Investment Officer of CMG Capital Management Group. CMG manages tactical portfolios and strategies for advisors, individuals, and institutions. The objective behind all of Mr. Blumenthal’s work is to help advisors build better portfolios by allocating with a long term game plan that is risk sensitive and properly diversified. Mr. Blumenthal is a self-proclaimed “quant geek,” with an analytical mind for the markets that helps him connect with everyday investors and industry experts alike.