MTA Educational Web Series

Transcription

1 MTA Educational Web Series One Practitioner s Guide to Combining Macro, Fundamentals and Technical Analysis Presented by: Keith Lerner, CFA, CMT Chief Market Strategist SunTrust Bank July 2014

2 Outline: Challenges and constraints for Institutional Managers A framework for decision making and creating an anchor Increasing probabilities for success by combining analyses Page 2

3 Example #1 Buy or Sell? 34 Price MA-50D Volume Relativ e Strength Index (RSI) Source: Factset Page 3

4 Example #2 Buy or Sell? 40 Price MA-50D Volume Relativ e Strength Index (RSI) Source: Factset Page 4

5 Example #3 Buy or Sell? 44 Price MA-50D Volume Relativ e Strength Index (RSI) Source: Factset Page 5

6 Example #4 Buy or Sell? 46 Price MA-50D Volume Relativ e Strength Index (RSI) Source: Factset Page 6

7 Trading vs. Investing 50 Price MA-50D 45 Example Example 1 Example 4 30 Example Volume Relativ e Strength Index (RSI) Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Source: Factset Page 7

8 Price Momentum is Highly Volatile Source: Credit Suisse Page 8

9 Framework For Decision Making Creating an anchor have sense of cycle interest rates credit markets historical context Tools for security selection Page 9

10 Creating an Anchor Where Are We In The Bull Market? Top Historic S&P 500 Bull Markets Begin End Years Price Change % Dec-87 Mar % Jun-49 Aug % Aug-82 Aug % Mar-09 Jun % Apr-42 May % Mar-35 Mar % Oct-74 Nov % Feb-33 Jul % Jun-32 Sep % Oct-02 Oct % Page 10 *Bull Market defined as >20% price gain and lasting at least 90 days using closing prices *3/9/09 Bull Market Not Included In Averages Source: SunTrust IAG, Bloomberg

11 Creating an Anchor Where Are We in Cycle? Prior Peak Dec 2007 RECESSION Slight Overweight to Neutral Risk/Growth Source: SunTrust IAG Underweight Risk/Growth Prior Trough June 2009 Overweight Risk/Growth Early Expansion Page 11

12 Creating an Anchor Market Reaction to Fed Hikes from Low Levels Page 12

13 Creating an Anchor Earnings & the Stock Market Profits tend not to contract outside recession $ $ $ $90 $ $ $ $ $ $30 $ $ Source: Standard & Poor s; consensus estimates Page 13 S&P 500 Earnings and Price Earnings (Left) S&P 500 (Right) Estimate

14 Creating an Anchor Internal Health: More Selective But Source: Factset Page 14

15 Creating an Anchor Not Consistent With Major Top 27% 43% 78% Source: Factset Page 15

16 Creating an Anchor Credit Indicators Not Consistent With Major Top Source: Factset; as of 6/23/14 Page 16

17 Creating an Anchor Helping Distinguish a Normal Pullback From a Major Top *Major correction defined as decline of 15% or more within 6-month period Source: Cornerstone Macro Page 17

18 Creating an Anchor Knowing Frequency of Pullbacks Source: Factset, SunTrust IAG; As of June 20,2014 Page 18 Peak Trough S&P 500 Pullbacks of >5% Since March 2009 Duration of Decline (Days) % Change Days to Next Correction 3/26/2009 3/30/ % 74 6/12/2009 7/10/ % /19/ /30/ % 81 1/19/2010 2/8/ % 74 4/23/2010 7/2/ % 231 2/18/2011 3/16/ % 44 4/29/ /3/ % 182 4/2/2012 6/1/ % 105 9/14/ /15/ % 187 5/21/2013 6/24/ % 205 1/15/2014 2/3/ % *137 Days Since Last Pullback median % 103 average % 128

19 Current Anchor -Economic and market cycle mature but low recession risk -Fed policy transition tends to see modest gains and a hiccup -Internals more selective but not suggestive of major mkt top -Credit markets well behaved Weight of Evidence = Bull continues, but choppier market and more modest gains. Sector/stock selection important. Page 19

20 Framework For Decision Making Create an anchor have sense of cycle interest rates credit markets historical context Tools for security selection Page 20

21 Tools for Security Selection Factors Come in & Out of Favor Monthly Factor Performance October 2013 to March % Price Momentum EPS Momentum Value 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Source: Factset Page 21

22 1 2 Tools for Security Selection Valuation with Momentum Can Generate Excess Return 2.5% 12 Month Excess Return: Momentum vs. Momentum + Value 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% High Price Momentum Source: Cornerstone Macro Research; from High Price Momentum + Valuation Page 22

23 Tools for Security Selection Combining Valuation, Relative Strength, EPS Trend VALUATION Relative Strength Composite Score RS Ranking RS Rank -3M EPS Trend 2014: 3-mth % chg 2015: 3-mth % chg S&P % -0.2% Sectors Energy % -0.6% Industrials % 0.1% Materials % 0.4% Information Technology % 0.8% Health Care % 1.9% Utilities % 2.6% Consumer Staples % -0.8% Financials % -1.8% Consumer Discretionary % -1.7% Telecommunication Services % -1.0% Source: Factset, SunTrust IAG; as of 6/23/14 Page 23

24 Tools for Security Selection Energy: Oil & Gas Exploration (April Chart) Source: Factset FOR ILLUSTRATION PURPOSES ONLY Page 24

25 Tools for Security Selection Technology: Semiconductors (April Chart) Source: Factset FOR ILLUSTRATION PURPOSES ONLY Page 25

26 Tools for Security Selection Japan (April Chart) Source: Factset FOR ILLUSTRATION PURPOSES ONLY Page 26

27 Key Takeaways Moving beyond just price Create an anchor Have sense of cycle, economy, interest rates and credit markets Improve probabilities of success by using other factors in conjunction with technicals Page 27

28 Disclosures: This material is for educational purposes only. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but there is no representation or guarantee as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. The information contained herein does not purport to be a complete analysis of any security, company, or industry involved. This material is not be construed as an offer to sell or a solicitation of an offer to buy any security. Opinions and information expressed herein are subject to change without notice. All opinions and information are believed to be reflective of judgments and opinions as of the date that material was originally published. There is no obligation to ensure that other materials are brought to the attention of any recipient of this commentary. The information and material presented in this commentary are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this commentary. Investing in any security or investment strategies discussed herein may not be suitable for you, and you may want to consult a financial advisor. Nothing in this material constitutes individual investment, legal or tax advice. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. An investment cannot be directly made into an index. Investment and Insurance Products: Are not FDIC or any other Government Agency Insured Are not Bank Guaranteed May Lose Value Page 28