Monthly Investment Compass Charting The Course Of The Markets

Transcription

1 Monthly Investment Compass Charting The Course Of The Markets September 21st, 2017

2 Monthly Investment Compass 1) Executive Summary: September 21 st, 2017 U.S. Stock Market: Virtually all of our near term metrics, including corporate bond spreads, ETF asset flows, price rate of change, and relative performance measures, suggest a healthy market that can potentially rise by an additional 3% to 5% between now and year end. Bigger picture, unmet upside targets in a number of US and positively correlated foreign assets, coupled with strong 4 th Quarter seasonality, suggest the potential for an additional 10% to 15% advance, overall, into Size: Small Cap and Mid Cap stocks are amid favorable conditions to outperform into year end 2017, while Large Cap appears vulnerable to upcoming relative underperformance. Style: The January trend of relative outperformance by Growth stocks remains intact, but must resume quickly to remain valid. US Market Sectors: We are currently overweight Energy and Materials, and outright positive on Health Care and Financials. Industry Groups: We have unmet upside targets in Semiconductors, Health Care Services and Homebuilders. Individual Stocks: We have existing long ideas in KMX, URI, and VLO and a short idea in CBS. US Interest Rates: We would view a sustained rise above 2.34% in the yield of the 10 Year Treasury Note as evidence that an intermediate term trend change, toward rising long term interest rates, is underway. 1

3 Price & Trend (1): NYSE, SOX Target Additional 1%, 5% Advances The NYSE Composite Index is within just 1% of reaching our 12,300 target based on a July 2016 breakout, which would equate to a 15% rise in 14 months. The market leading PHLX Semiconductor Index targets an additional 5% rise to 1214, based on an August 31 st breakout from investor decision. 2

4 Price & Trend (2): Most Major Indexes Have Met Initial Upside Targets The Dow Industrials met our 20,300 upside target back in February, which was based on an August 2016 breakout, to capture a 13% gain in 10 months. The Dow Transports met our 9700 upside target in July, which was based on a July 2016 breakout, to capture a 22% gain in 12 months. 3

5 Price & Trend (3): The Broad Market Is Trading 2% 5% Above Underlying Support The benchmark S&P 500 is currently trading 2% above minor support and 5% above major support. A sustained declined below the former would be necessary to suggest that a countertrend correction is underway. 4

6 Intermarket Analysis (1): September Breakout In United Kingdom ETF Targets A 3% Rise The September 11 th breakout in the ishares MSCI United Kingdom ETF targets an additional 3% rise to or a total advance of 4%. The positive correlation between EWU and the S&P 500 suggests that as goes the UK Index, so is likely to go the US broad market. 5

7 Intermarket Analysis (2): March Breakout In India ETF Targets Additional 10% Rise The March 1 st breakout in the ishares MSCI India ETF targets an additional 10% rise to 38.00, or a total advance of 26%. The positive correlation between the Bombay Sensex and S&P 500 suggests that as goes INDA, so is likely to go the US broad market. 6

8 Intermarket Analysis (3): Positively Correlated China Making New All Time Highs The SPDR S&P 500 China ETF is breaking overhead resistance at its May 2015 benchmark high and making new alltime highs. The tight positive correlation between GXC and the S&P 500 suggests that as goes China, so is likely to go the US broad market. 7

9 Trade Ideas: KMX, URI Target Additional 12%, 15% Gains The late August resumption of the major uptrend in Consumer Discretionary stock Carmax Inc. targets an additional 12% rise to per share. The early September resumption of the major uptrend in Industrials stock United Rentals targets an additional 15% rise to per share. 8

10 Trade Ideas (2): VLO Targets Additional 8% Rise, CBS Targets A 7% Decline The September 11 th resumption of the major uptrend in Energy stock Valero Energy targets an additional 8% rise to per share. The early September major bearish trend change in Consumer Discretionary stock CBS Corp. targets an additional 7% decline to per share. 9

11 Stock & ETF Ideas: Trending Stocks With Good Risk/Reward Parameters The top portion of the table includes our current trade ideas with risk parameters. The middle portion lists our current price targets for global stock indexes. The bottom portion lists our 15 most recent closed out ideas with performance data. 10

12 Momentum: Near Term, Intermediate Term Positive SPX s 1 month rate of change, a near term momentum gauge, has been positive (bullish) since September 8 th and will remain so above 2453 to 2426 Meanwhile, the MACD, a near to intermediate term momentum gauge, moved back into positive (bullish) territory on September 7th. 11

13 ETF Asset Flows: Near Term Positive The daily total net assets invested in the SPDR S&P 500 ETF (SPY) have been choppy of late, indicating indecision, but generally in monthly expansion. The daily total net assets invested in the ishares Russell 2000 ETF have been aggressively expanding since late August, which is positive for small cap stocks. 12

14 Corporate Bond Spreads: Near Term Positive High yield corporate bond spreads shifted to a trend of monthly narrowing on August 31 st, which is near term positive for the US stock market. BAA corporate bond spreads moved back to monthly narrowing 2 weeks later, on September 14 th, which corroborates bond market complacency. 13

15 Relative Performance: Near Term Positive Junk bonds (JNK) have been underperforming the US broad market (SPY) since August 31 st (note the inverse scale in the upper panel), which has historically coincided with near term strength in the S&P 500 (lower panel). 14

16 Volatility: Near Term Positive With few exceptions, the CBOE Volatility Index has been hovering below for most of this year. A sub VIX indicates a complacent, relatively fearless market that can continue to grind higher indefinitely. 15

17 Investor Sentiment: Near Term Positive, Intermediate Term Negative A survey of near to intermediate term oriented futures traders is rising from the 47% bullish level, an area which has previously led near term rallies in SPX. Meanwhile, a survey of intermediate to long term oriented brokerage and advisory firms is hovering at most bullish extremes, warning of an intermediate term peak. 16

18 Market Breadth: Near Term Positive, Intermediate Term Negative The percentage of NYSE Composite stocks trading above their 40 day MA is rising from a mid August low that has previously been associated with near term market advances. The percentage of these constituents trading above their 200 day MA has been declining from frothy extremes since February, indicating a weakening intermediate term price trend. 17

19 Overbought/Oversold: Near Term, Intermediate Term Negative SPX has reached a monthly overbought extreme that has previously coincided with or closely led near term market tops during the past year. Meanwhile, SPX is also retracting from March quarterly overbought extremes that have historically coincided with or closely led intermediate term market tops. 18

20 Seasonality: Near Term Negative, Intermediate Term Positive September is the seasonally weakest month of the year in the S&P 500, but is followed by a gradually strengthening 4 th Quarter that includes the strongest month of the year, December. This quarterly chart shows that the final week of September is by far the seasonally weakest of the entire 3 rd Quarter in the S&P

21 Size: Small Cap, Mid Cap Poised For Q4 Relative Outperformance IJR (S&P 600) is reversing from quarterly oversold extremes vs. ITOT (S&P 1500) that have previously led quarterly relative outperformance by Small Cap. IJH (S&P 400) is also reversing from similar quarterly oversold extremes vs. ITOT that have previously led quarterly relative outperformance by Mid Cap. 20

22 Style: Growth Stocks January Performance Trend Still Remains Intact The S&P 500 Growth ETF (SPYG) has been in a trend of quarterly relative outperformance versus the S&P 500 ETF (SPY) since late January, but is closing in on its fourth test of that trend since mid June. Key decision point. 21

23 Sectors (1): Investor Assets Moving Into Energy, Out Of Industrials Asbury s sector rotation model is currently overweight Energy (September 18 th ) and Materials (September 5 th ). The biggest inflows over the past month went to Energy, and over the past 3 months went to Health Care. The biggest outflows over the past month came from Industrials, and over the past 3 months came from Consumer Discretionary 22

24 Sectors (2): Materials, Utilities Under Invested. Consumer Discretionary, Health Care Over Invested. This chart shows the historic daily average distribution of assets invested in the original 9 Sector SPDR ETFs since the series began in May This chart shows the current distribution of these assets through September 14 th. The most under invested sectors are 1) Materials, 2) Utilities and 3) Energy. The most over invested sectors are 1) Consumer Discretionary, 2) Health Care,and 3) Industrials. 23

25 Sectors (3): Health Care, Financials Target Additional 17%, 8% Advance The SPDR Health Care Sector ETF has an additional 17% to go to reach our target, based on the May resumption of its 2013 advance. The SPDR Financial Sector ETF may be resuming its late 2016 advance which, if true, would target an additional 8% rise to

26 Industry Groups: Homebuilders Targets Additional 17% Advance This table displays our current upside targets for Sector and Industry Group ETFs, the date we made the target available to subscribers, and how the ETF has performed since then. The SPDR Homebuilders ETF has risen by 9% since resuming its long term uptrend in February, and still has an additional 17% to go to reach our $45.00 target. 25

27 US Interest Rates Commercial Hedgers, Retail Trend Followers Suggest Rising Yields Commercial hedgers are holding a fully hedged position in futures, which represents an aggressive bet by the smart money on rising long term interest rates. Meanwhile, retail futures traders are retracting from a most bullish extreme that has historically led a decline in long dated Treasury prices and a rise in yields. 26

28 US Interest Rates A Sustained Rise Above 2.34% In The 10 Year Signals A Major Trend Change Benchmark 10 Year yields are still trading below major yield resistance at 2.31% to 2.34%, but are challenging it from below. Watch for a confirming breakout. Meanwhile, the ishares 20+ Year Treasury Bond ETF has failed at major resistance, and is now testing support at Watch for a breakdown. 27

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