Current View of the Markets

Transcription

1 Current View of the Markets (charts as of 01/20/15) By Fred Meissner, CMT The FRED Report 4514 Chamblee Dunwoody Dunwoody, GA Web: Phone: FRED

2 About The Fred Report The FRED Report research product has two levels of service for Financial Advisors, Conference Call level and NewsleLer level Conference Call level clients receive: (1) Weekly Report, (2) Midweek Update, (3) Thursday morning conference call, (4) Comprehensive Monthly Review, (5) Sector Review: Discussion of the ten GICS Sectors, with equity ideas as well PLUS occasional Special Reports Clients at the major firms PLUS JP Morgan, Stephens, SQfel Nicolas Complements Dorsey Wright and firm research. Includes some individual consultason on the conference call level. Use us as a second opinion! Prices: Conference call $80/mo, $768/yr, Newsle\er $30/mo, $360/yr BDA compaqble at ML, MS, UBS and WF Advisors Go to click Join Now and use Promo Code free for 30 day free trial REFERENCES AVAILABLE: contact us Fred@theFREDreport.com and provide phone number so we can call if necessary 2

3 Overall Macro Views for 2015 This should be a year of volaqlity and short term trends for all markets. Traders, not investors, could prosper. Stocks are at risk for the biggest correcqon since This should occur in the first half of Should this occur the second half could be strong: target range on SPY is is predicated on Q1 or Q2 being negaqve. Stocks are especially at risk for higher volaqlity. Bonds prices should hit highs in the first part of Traders sell bonds at 134, our objecqve for the year on TLT. AlternaQves to treasuries should fare be\er than TLT in Watch DSUM, PCY, and BKLN. Gold should have a strong first half and GLD could test

4 Overall Macro Views for 2015 Oil should bo\om no later than March We would expect these lows to be retested no more than 10 weeks aker the lowest monthly close. DBC should bo\om in the first half of Watch DBA and the sok commodiqes they may do be\er than consensus expectaqons. Currency markets: A stronger dollar is possible in the first part of 2015 but it is extended and should have a weaker second half. The Yen should outperform the Euro. We are long the Swiss Franc in our models moving into Emerging markets could outperform developed Europe, especially if LaQn America starts to improve. Watch EWZ, ARGT, and ILF to detect improvement in LaQn America. Switzerland remains our favorite European market. 4

5 Chart: SPY S&P 500 SPDR 5

6 Chart: MDY S&P Mid-Cap 400 SPDR 6

7 Chart: IJR S&P 600 Small-Cap Index 7

8 Chart: NYA NYSE Composite Index 8

9 Chart: SPY SPDR S&P 500 9

10 Chart: PDP PowerShares Technical Leaders 10

11 Chart: SPLV PowerShares SP 500 Low Vol 11

12 The FRED Report Portfolios The biggest hurdle we have had in our capacity as Poroolio Strategist at various firms, is that most firm poroolios were not tacqcal enough due to firm policy, so these poroolios will be a bit more tacscal than most offerings as we are unrestricted. A key point is that most of these poroolios and models will be ObjecSves Based. By this we mean that each poroolio will have an objecqve, and meeqng that objecqve is more important to us than straight market out performance. Large Cap and Small Cap Sectors ObjecSve: Maintain a fully invested stance in stocks, but to use sector weighqngs to: (1) capture more upside, and (2) miqgate downside risk than the SPY Index ETF (for Large Cap) and IJR Index ETF (Small Cap). Timing Models (DomesQc, Developed InternaQonal, and Emerging InternaQonal): The FRED Timing Models are designed to use some of the Qming techniques we use to forecast markets in the FRED Report, with varying degrees of risk, due to the construcqon and more acqve management of the ETFs in the strategies. Bucket List: The Bucket List poroolio is designed to take the overall secqons of The FRED Report weekly report and list some ideas advisors can use by category. We will have 5 categories: Stocks, Fixed Income, CommodiQes, InternaQonal, and Chart of Interest or Areas of Interest. We will have a maximum of 25 units in this poroolio, allocaqng 5 units to each category. 10/13/15 Update: TIMING MODEL CHANGES AND COMMENTARY We will move the both the DomesSc High Beta and High RelaSve Strength models back to Defensive from Neutral by buying one SPLV in each model and selling one SPHB and PDP respecqvely. There is enough risk to suggest this is correct, and we can revisit later. We want to see indicators improve There are no changes in the InternaQonal Timing Models. BUCKET LIST CHANGES AND COMMENTARY In the Stock Bucket, we have no changes, but stay tuned if the market gets worse we will make some changes. In the Areas of Interest bucket, we remove EWI and add IDLV. We also remove UUP and add FXF. The Swiss Franc is near long term support and usually does well during Euro turmoil. In the Bond Bucket, No changes. In the InternaSonal Bucket we sell EWG and buy EWL, reversing a decision at the beginning of the year. In the CommodiSes Bucket, we remove one DBC and add one USO to play the seasonal oil trade. 12

13 The FRED Report Portfolios Large Cap Sector Porbolio: Large Cap Sectors ObjecSve: Maintain a fully invested stance in stocks, but to use sector weighqngs to: (1) capture more upside, and (2) miqgate downside risk than the SPY Index ETF. Large Cap Sectors weighsng methodology: we use two units as an equal weight, three as an overweight, and one as an underweight. Small Cap Sector Porbolio: Small Cap Sectors ObjecSve: Maintain a fully invested stance in stocks, but to use sector weighqngs to: (1) capture more upside, and (2) miqgate downside risk, than the IJR Index ETF. Small Cap Sectors weighsng methodology: We will use two units as an equal weight, three as an overweight, and one as an underweight. 13

14 The FRED Report Portfolios Timing Model Porbolios Timing and WeighSng Methodology: We offer domesqc and internaqonal Qming models for advisors to choose with various degrees of risk produced by the ETF instruments used (Aggressive and Less Aggressive). We use a 4, 3, 2, 1, 0 unit methodology for weighqng and consider the poroolio to be neutral with two high beta units and two low volaqlity units paired together. A bullish/aggressive stance would be three high beta units is paired with one low volaqlity unit and a full bullish stance would be four units in a high beta instrument. A defensive stance would be one high beta unit and three low volaqlity unit. A full bearish stance would be four low volaqlity units. 14

15 Fixed Income Section Fixed Income is the most challenging area of the markets, and our biggest concern in the years ahead. TLT has rallied to targets of 134 at the beginning of January as forecast, from our October 2013 buy signal, but this may end in If (when?) rates start to rise, other fixed income areas may start to outperform. We show TLT and some candidates that could outperform bonds if rates start to rise. 15

16 Chart: TLT ishares Barclays 20+ Year T - Bond 16

17 Chart: CWB SPDR Convertible Income Bond ETF 17

18 Chart: BWX SPDR International Treasury Bond 18

19 Chart: PCY PowerShares Emerging Markets Sovereign Debt 19

20 Chart: DSUM PowerShares Chinese Yuan Bond Portfolio 20

21 Chart: BKLN PowerShares Senior Loan Portfolio 21

22 The Commodity Theme and Inflation At the FRED Report, we believed that inflaqon will win, and commodiqes should be a great long term investment. The recent decline in oil may prove this wrong. DeflaQon is a concern. We begin 2015 with buy signals in gold but this may be currency related. We expect a tradable bo\om in oil in the first half but any low should be retested. Oil s long term oscillators are as oversold as 1986 and

23 The Commodity Theme and Inflation - DBC 23

24 The Commodity Theme and Inflation - GLD 24

25 PowerShares DB Oil Fund (DBO) 25

26 PowerShares DB Base Metals Fund (DBB) 26

27 International Review There conqnues to be concerns about European problems, and these may worsen. Switzerland remains the strongest European market long term, but recent currency moves could change this. Emerging Markets have more potenqal than consensus expectaqons and we remain bullish. Asian markets are strong, and Japan should improve in 2015 as long as FXY is below 105. China is a concern. 27

28 ishares MSCI Switzerland Index (EWL) 28

29 ishares MSCI Germany Index (EWG) 29

30 ishares MSCI Italy Index (EWI) 30

31 Powershares International Dividend Achievers (PID) 31

32 ishares FTSE Xinhau China 25 (FXI) 32

33 SPDR S&P China ETF (GXC) 33

34 PowerShares Golden Dragon (PGJ) 34

35 ishares MSCI Japan Index Fund (EWJ) 35

36 ishares MSCI Emerging Markets Index (EEM) 36

37 PowerShares DWA Emerging Markets (PIE) 37

38 PowerShares S&P Emerging Markets Low Vol (EELV) 38

39 Technical Indicators Readers will note that we use the same indicators on all of the charts in this presentaqon. We append definiqons of these indicators and are available via to answer quesqons about this methodology. 39

40 Technicals Defined Moving Averages: Moving averages are one of the building blocks of Technical Analysis, and there are almost as many ways to use this indicator as there are technicians. At the FRED report we teach and use a dual moving average crossover system to determine trend. Our favorites are the 5 period and 20 period moving averages. We consider the trend to be up if the 5 is above the 20, and down if below it. StochasScs: The StochasQc Oscillator is one of the commonly used momentum oscillators and is standard on charqng programs. There are two lines on the chart below, %K and %D. %K is the faster of the two lines, and represents a mathemaqcal formula that measures where the current close is in rela0on to the trading range of the last X periods of 0me. We use a 14 period look back, so in plain English %K says where the current close is in the trading range of the last 14 days, expressed as a %. At the FRED report we use it somewhat differently than is commonly taught. The standard way to use the indicator is to register a buy signal when it moves below, and then above, 20 (the lowest 20% of closing prices in the last 14 days). A sell signal is when the indicator moves above, and then below 80 (the highest 80% of closes over the last 14 days). The other line, %D, is a 3 period moving average of %K. We have found that the StochasQc is sensiqve, so we advocate taking signals only in the direcqon of the trend. When looking at the standard FRED report chart, this would mean taking buy signals when the 5 is above the 20, and sell signals when the 5 is below the 20, but using a different technique to exit posiqons. The reason for this is the StochasQc is quite sensiqve, and can give early indicaqons, especially in new trends. It also can get stuck in the direcqon of trends, which connotes strength and not weakness. Another, preferred interpretaqon, is to use the indicator to measure risk. An example: buy in an uptrend, not when the stochasqc is at 90% but rather wait unql it falls below 50%, This way, even if a stock, commodity, or ETF does not give one of the classic signals, you can sqll use the indicator to assess risk, and leg into posiqons. 40

41 The FRED Report Got FRED? The FRED Report is a unique independent research service designed primarily for Financial Advisor Teams and small institutions. There are four levels of service built in layers, described below. The Newsletter Service, our basic service, consists of the basic reports. These are: The Weekly Report, six pages discussing Stocks, Bonds, Commodities, International, and a Chart of Interest, published Monday morning. A Midweek Update, which is generally two pages, updating the weekly report, published Wednesday. The Monthly Review, which is a comprehensive review of all of the markets we cover, plus a research piece. It is generally forty pages. FRED Alerts, or quick updates, in fast market conditions. COST: $30/Month or $360/year, payable by credit card, or check for annual only. The Conference Call Service consists of the Newsletter service PLUS: A Thursday morning conference call where advisors and managers from all over the world participate. This is a live call where stocks are discussed, and all questions are answered in real time. A replay is available. A comprehensive Sector Review where the 10 GICS Sectors are discussed and stocks in each sector discussed. There is some idea generation with equities and ETFs. There is limited consultation via phone and also attached to this service. COST: $80/month or $768/year, payable via credit card, or check for annual only. Depending on workload, we reserve the right to limit subscriptions to a certain manageable number. The Institutional Level: Consists of Newsletter and Conference call services PLUS: A chart analysis of the portfolio once per month, A conference call for your institution, Consultation via phone and . We will limit subscriptions to a certain manageable number: COST: $300/month. The Premium Level: Consists of the Institutional level PLUS: Unlimited access and consultation we even work weekends! We will limit this to 10 clients. We take this level of client only if the work interests us. COST: $1,000/month. Quarterly billing and soft dollar payment can be arranged for Institutional and Premium Levels of Service. 41

42 This presentason was made possible by The FRED Report. For more informason, visit us online at The FRED Report ( was started to provide Financial Advisors and investors access to unbiased market research. The President of The Fred Report, Fred Meissner, CMT has been pracqcing Technical Market Analysis since 1983 and has worked in the research departments of Merrill Lynch and Robinson Humphrey /Smith Barney. In addiqon he has served the public as a poroolio manager and financial advisor. We know the problems investors face and have devoted our career to helping find the best possible investments in all environments. Interested readers can also see his work every week at