Trade Signals New All Time High, Trend Evidence Remains Positive

Transcription

1 cmgwealth.com Trade Signals New All Time High, Trend Evidence Remains Positive S&P 500 Index 2100 By Steve Blumenthal February 18, 2014 Every once in a while I post a chart on margin debt. Like available cash, margin debt can be used to buy stocks. Such demand can fuel stock prices higher. Problems tend to occur when you reach extreme. Evidence suggests we have reached such point. Today, overall margin debt is higher than it was at the 2000 and 2007 peaks. What I m watching for is a turn lower from its peak. Chart 1 shows the current level of margin debt. Chart 2 looks at where margin debt is relative to a 15-month trend. Concerning is the recent drop below that trend. Special Chart #1 Margin Debt Special Chart #2 Margin Debt vs. 15-Month Smoothing

2 The orange lines (red arrows) mark previous periods in time when margin debt as a percentage of GDP dropped below its 15- month moving average line. Except for a head fake in 2011 and 2012, it has done a pretty good job at calling the prior market peaks. Think about this in the context of an overvalued market. However, trend remains positive, the Fed supportive and sentiment neutral. I m keeping a very close eye on my trend indicators (Big Mo and 13/34-Week EMA) as risk remains high. Following are the usual weekly charts. Included in this week s Trade Signals: Cyclical Equity Market Trend: Cyclical Bullish Trend for Stocks Volume Demand Continues to Better Volume Supply Bullish for Stocks Weekly Investor Sentiment Indicator: NDR Crowd Sentiment Poll: Neutral Optimism (short-term neutral for stocks) Daily Trading Sentiment Composite: Extreme Pessimism (short-term bullish for stocks) The Zweig Bond Model: The Cyclical Trend for Bonds Remains Bullish Cyclical Equity Market Trend: Cyclical Bullish Trend for Stocks Remains Big Mo follows a weight of evidence approach to determine the market s cyclical trend.

3 Click here to see How I Think About Big Mo. 13/34-Week EMA Trend Chart: Cyclical Bullish Trend for Stocks

4 Following is a closer look at the S&P 500 via the ETF SPY 2006 to present. Click here to see How I think about the 13/34-Week Exponential Moving Average. In summary, both Big Mo (Momentum) and the 13/34-Week EMA suggest that the market remains in a cyclical bull market (up trending) state (but hedged as valuations are high, the market bull is aged; thus, overall equity market risk is high). Volume Demand Continues to Better Volume Supply Bullish (last signal yellow circle)

5 The yellow highlight in the upper left shows the S&P 500 Index % Gain per annum when the model is on a buy signal. Also noted is the market s % gain per annum when the model is on a sell signal. Demand continues to be stronger than selling supply. While no single indicator will ever be perfect, the long-term historical buy and sell signals based on measuring volume demand minus volume supply has done a pretty good job at identifying market turning points. Let s watch this chart closely. Investor Sentiment : NDR Crowd Sentiment Poll: Neutral Reading (Neutral for Stocks)

6 Click here to see How I Think About Investor Sentiment. Daily Trading Sentiment Composite : Neutral Reading (Neutral for Stocks)

7 The Zweig Bond Model: BUY Signal Cyclical Bull Trend for Bonds Remains Bullish

8 Historical performance is summarized in the table on the bottom right. The yellow highlight shows the current buy signal for the strategy and historical performance on signal (the model was established in the 1980s the data is hypothetical). The blue line shows the growth of $100 since April 1, 1967 in comparison to the black line which is the Barclays Aggregate Total Return index. The table at the bottom left compares the two. Click here for notes on How To Track The Zweig Bond Model on your own. For new readers: Given the historically low yield on bonds, I believe it is important to understand what happens to bonds when interest rates rise. Bonds simply do not provide the same yield benefit to portfolios and the risk that rates normalize (move higher) is real. The next chart shows the risk and return benefit. This is why I believe bond allocations should be tactically managed today. The Zweig Bond Model may help you stay in sync wit the major trend. Shorten maturities on sell signals and lengthen maturities on buy signals. Also consider relative strength based tactical fixed income strategies that have the ability to move to various fixed income ETFs. Why Having a Risk Focused Process is Important: Interest Rate Gain/Loss Per Every 1% Interest Rate Move

9 What relative strength is telling us about market leadership: As a quick note, our tactical all asset strategies are mostly long equity funds and ETFs. Recent trades have favored large cap value and technology. Our tactical HY strategy remains invested in HY funds/etfs and our tactical fixed income strategy, after being invested in longer-term Treasury bonds and International Sovereign bonds, is now showing leadership to HY and emerging market debt. Thank you for your interest in this weekly post. It is appreciated! With kind regards, Steve Social Media Links: CMG is committed to setting a high standard for ETF strategists. And we re passionate about educating advisors and investors about tactical investing. We launched CMG AdvisorCentral a year ago to share our knowledge of tactical investing and managing a successful advisory practice. You can sign up for weekly updates to AdvisorCentral here. This week s update features the winner of the ipad contest from the Inside ETFs Conference. In case you missed last week s AdvisorCentral weekly update devoted to the Inside ETFs conference, you can find that here. If you re looking for the CMG White Paper Understanding Tactical Investment Strategies you can find tha here. AdvisorCentral is being updated with new educational resources we look forward to sharing with you in March. You can always connect with CMG on Twitter and follow our LinkedIn Showcase page devoted to tactical investing. Stephen B. Blumenthal Founder & CEO CMG Capital Management Group, Inc. Philadelphia King of Prussia, PA steve@cmgwealth.com Phone Fax Provided are several links to learn more about the use of options: For hedging, I favor a collared option approach (writing out of the money covered calls and buying out of the money put options) as a relatively inexpensive way to risk protect your long-term focused equity portfolio exposure. Also, consider buying deep out o the money put options for risk protection.

10 Please note the comments at the bottom of this Trade Signals discussing a collared option strategy to hedge equity exposure using investor sentiment extremes is a guide to entry and exit. Go to to learn more. Hire an experienced advisor to help you. Never write naked option positions. We do not offer options strategies at CMG. Several other links: src=trada2&pc=trada2&gclid=ckna3puu6rwcftro7aodriqalw IMPORTANT DISCLOSURE INFORMATION Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by CMG Capital Management Group, Inc (or any of its related entities-together CMG ) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. No portion of the content should be construed as an offer or solicitation for the purchase or sale of any security. References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities. Certain portions of the content may contain a discussion of, and/or provide access to, opinions and/or recommendations of CMG (and those of other investment and non-investment professionals) as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current recommendations or opinions. Derivatives and options strategies are not suitable for every investor, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Moreover, you should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from CMG or the professional advisors of your choosing. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisors of his/her choosing. CMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any CMG client from any specific funds or securities. Please note: In the event that CMG references performance results for an actual CMG portfolio, the results are reported net of advisory fees and inclusive of dividends. The performance referenced is that as determined and/or provided directly by the referenced funds and/or publishers, have not been independently verified, and do not reflect the performance of any specific CMG client. CMG clients may have experienced materially different performance based upon various factors during the corresponding time periods. CMG Global Equity Fund TM and CMG Tactical Futures Strategy Fund TM : Mutual Funds involve risk including possible loss of principal. An investor should consider the Fund s investment objective, risks, charges, and expenses carefully before investing This and other information about the CMG Global Equity Fund TM and CMG Tactical Futures Strategy Fund TM is contained in each Fund s prospectus, which can be obtained by calling CMG Please read the prospectus carefully before investing. The CMG Global Equity Fund TM and CMG Tactical Futures Strategy Fund TM are distributed by Northern Lights Distributors, LLC, Member FINRA. NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. Hypothetical Presentations: To the extent that any portion of the content reflects hypothetical results that were achieved by means of the retroactive application of a back-tested model, such results have inherent limitations, including: (1) the model results do not reflect the results of actual trading using client assets, but were achieved by means of the retroactive application o the referenced models, certain aspects of which may have been designed with the benefit of hindsight; (2) back-tested performance may not reflect the impact that any material market or economic factors might have had on the adviser s use of the model if the model had been used during the period to actually mange client assets; and, (3) CMG s clients may have experienced investment results during the corresponding time periods that were materially different from those portrayed in the model. Please Also Note: Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance will be profitable, or equal to any corresponding historical index. (i.e. S&P 500 Total Return or Dow Jones Wilshire U.S Total Market Index) is also disclosed. For example, the S&P 500 Composite Total Return Index (the S&P ) is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor s chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The historical

11 performance results of the S&P (and those of or all indices) and the model results do not reflect the deduction of transaction and custodial charges, nor the deduction of an investment management fee, the incurrence of which would have the effect of decreasing indicated historical performance results. For example, the deduction combined annual advisory and transaction fees of 1.00% over a 10 year period would decrease a 10% gross return to an 8.9% net return. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual in determining whether the performance of a specific portfolio or model meets, or continues to meet, his/her investment objective(s). A corresponding description of the other comparative indices, are available from CMG upon request. It should not be assumed that any CMG holdings will correspond directly to any such comparative index. The model and indices performance results do not reflect the impact of taxes. CMG portfolios may be more or less volatile than the reflective indices and/or models. In the event that there has been a change in an individual s investment objective or financial situation, he/she is encouraged to consult with his/her investment professionals. Written Disclosure Statement. CMG is an SEC registered investment adviser principally located in King of Prussia, PA. Stephen B. Blumenthal is CMG s founder and CEO. Please note: The above views are those of CMG and its CEO, Stephen Blumenthal, and do not reflect those of any sub-advisor that CMG may engage to manage any CMG strategy. A copy of CMG s current written disclosure statement discussing advisory services and fees is available upon request or via CMG s internet web site at (