Investing During The Trump Administration: Opportunity & Danger

Transcription

1 Investing During The Trump Administration: Opportunity & Danger Prepared for the Los Angeles Chapter of the American Association of Individual Investors (AAII ) June 17 th, 2017

2 About Asbury Research John Kosar, Chief Market Strategist John has more than 30 years of experience and insight in analyzing and forecasting global financial markets. John spent the first half of his career on the trading floor of the Chicago futures exchanges, where he had the opportunity to learn how the US financial markets work from the inside out. This experience, early in his career, became the foundation for his unique analysis, understanding of intermarket relationships, and global perspective. John incorporates a diverse and comprehensive blend of technical and quantitative metrics that tend to be more intuitive and forward looking than the typical Wall Street approach. John is frequently quoted in the financial press in both the US and abroad including The Wall Street Journal, MarketWatch.com, Barron s, Yahoo! Finance, CNBC.com, and Reuters. He can regularly be seen on U.S. financial television including CNBC, Fox Business, and Bloomberg, and is a frequent speaker at financial seminars and events across the country presented by organizations including the Chartered Financial Analyst (CFA) Society, the National Association of Active Investment Managers (NAAIM), the Market Technicians Association (MTA), and the American Association of Individual Investors (AAII). 1

3 About Asbury Research Our Research & Services Asbury Research Subscribers Get: specific information on when to be invested and when to play defense. our recommendations on where to be invested in terms of size (small, medium, or large cap stocks) and style (growth vs. value). specific indexes, market sectors, industry groups, and stocks and ETFs to buy and sell, including a table of our current stock and ETF ideas. notification when new research is available, and unlimited access to our passwordprotected Research Center. updates on our Correction Protection Model (CPM) for the US stock market. direct analyst access. 2

4 About Asbury Research Correction Protection Model (CPM): When To Be Invested Purpose & Key Features: The model is a defensive hedge against market corrections and bear markets that can decimate investor portfolios. The model utilizes 4 quantitative inputs. The model uses the S&P 500 as a proxy for the market. The model is binary: either in the market (Risk On) or out of it (Risk Off). There are no short positions, leveraged longs, or hedging via derivatives. The model was designed to: 1) be in the market as much as possible, 3) exit on meaningful declines, and 4) quickly reenter as soon as a positive trend has been reestablished. Since 2007, the model has been in the market 74% of the time Since 2007, the model has averaged 4.6 signals per year or approximately 1 per quarter. 3

5 About Asbury Research Stock & ETF Ideas: Where To Be Invested Our model first identifies stocks and ETFs that are in the midst of a pause (investor indecision) within an established price trend, then attempts to buy the resumption of that trend at a price and time when the risk/reward parameters are the most favorable. The table above displays and breaks down our 35 most recent closed out trading ideas, through , along with some performance related information in the table at right. Our methodology produces: 1> a high percentage of winning trades, 2> a low initial risk, and 3> significantly larger winning trades than losing trades all as shown in the table above. 4

6 Investing During The Trump Administration: Opportunity & Danger 1) Executive Summary: June 17 th 2017 U.S. Stock Market: The vast majority of our price based metrics suggest at least another 2% to 4% advance in the major US indexes over the near term, and as much as an additional 15% to 20% over the intermediate to long term based on unmet targets in positively correlated individual stocks, industry groups, and foreign indexes. The risk to this forecast is the extreme level of investor complacency amid historically bullish investor sentiment, technically overbought conditions, and a 60 year seasonal trend of market weakness between now and September. However, as long as price momentum and investor asset flows remain positive, and corporate bond spreads continue to narrow, our bullish outlook will remain intact. Size: Small Cap stocks are amid favorable conditions to outperform into and during 3 rd Quarter Style: The January trend of relative outperformance by Growth stocks remains intact, but must resume from right here for it to remain intact. US Market Sectors: Our sector rotation model is currently overweight Materials, Consumer Discretionary, Utilities, Consumer Staples, and Health Care. Industry Groups: Homebuilders, Health Care, Biotech, and Industrials target anywhere from an additional 3% to 23% advance. Stock Ideas: Long COL, MCO, PLD, and PHM. 5

7 Investing During The Trump Administration: Opportunity & Danger 2) Executive Summary: June 17 th 2017 US Interest Rates: Recent weakness in the yield of the 10 Year Treasury Note warns of an upcoming, near term decline to around 2.00%. Precious Metals: Gold and platinum prices appear to be headed higher over the next 1 2 months. Key Intermarket Relationships: Key US stocks that are positively correlated to the S&P 500: COL, MCO, PLD Key Sector and Industry Group ETFs that are positively correlated to the S&P 500: XHB, XLI Key Foreign Indexes that are positively correlated to the S&P 500: EEM, INDA The yield of the 10 Year Treasury Note is inversely correlated to gold prices Gold and platinum prices are positively correlated Therefore: 1. more upcoming strength in key individual stocks, industry groups, and overseas indexes support more coincident US broad market strength, and 2. A minor decline in long term US interest rates should coincide with a continuation of the 2017 rise in precious metals prices. 6

8 Price & Trend (1): Recent Breakouts In Blue Chips, Small Cap Target Additional 2% To 5% Rise The May 25 th breakout from 3 months of investor indecision in the Dow Industrials targets an additional 2% rise to 21,700 that will remain valid above 20,975. Meanwhile, the ishares Core S&P Small Cap ETF is breaking out from 6 months of investor indecision that targets an additional 5% rise to

9 Price & Trend (2): Dow Transports, NYSE Target An Additional 4% To 5% Rise The July 2016 breakout in the NYSE Composite Index continues to target an additional 5% rise to 12,300, which would be a total advance of 15%. The Dow Transports have an additional 4% rise to go to meet the 9800 target of their own July 2016 breakout, for a total gain of 21%. 8

10 Price & Trend (3): New 17 Year Highs In Tech Stocks Are Long Term Bullish January s rise in the NASDAQ 100, above its March 2000 top of the tech bubble high, establishes a new, higher range for this market leading index. This is long term bullish for the US stock market in general. 9

11 Intermarket Analysis (1): Positively Correlated Emerging Market ETF Targets A 3% Rise EEM s July 2016 breakout still targets an additional 3% rise to 43.00, which would equate to a total advance of 22%. The tight positive correlation between EEM and the S&P 500 also suggests a positive near term bias for the US market. 10

12 Intermarket Analysis (2): March Breakout In Positively Correlated India Targets A 15% Rise The March 1 st breakout in the ishares MSCI India ETF targets an additional 15% 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. 11

13 Long Ideas (1): Market Correlated COL, MCO Target Additional 5%, 20% Advances Rockwell Collins has already risen by 12% since we initiated a long idea on Dec 2 nd and still has an additional 5% to go to reach our $ target. Moody s Corporation has risen by 10% since we initiated our February 29 th buy idea, and still has an additional 20% to go to reach our $ target. 12

14 Long Ideas (2): PLD, PHM Target Additional 7%, 6% Advances The April 10 th resumption of the Feb 2016 uptrend in real estate stock ProLogis, Inc. has gained 7% so far, and targets an additional 7% rise to $ The early June breakout higher in homebuilder PulteGroup, Inc. targets an additional 6% rise to $

15 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. 14

16 Momentum: Near Term To Intermediate Term Positive SPX s 1 month rate of change, a near term momentum gauge, turned positive on April 20 th to indicate the index s monthly trend is bullish. The MACD, an intermediate term momentum gauge, rebounded back into positive territory from its zero line on April 19 th to indicate a bullish quarterly trend. 15

17 ETF Asset Flows: Positive Expansion In Broad Market & Small Cap The total net assets invested in the SPDR S&P 500 ETF (SPY) have moved back into monthly expansion on May 26 th, from $228B. Near term positive for SPX. Meanwhile, the total net assets invested in the ishares Russell 2000 Index ETF have also moved back above their 21 day MA this week, which is near term bullish. 16

18 Corporate Bond Spreads: Near Term Positive High yield corporate bond spreads have essentially remained in a trend of monthly narrowing since April 21 st, from monthly widening since March 9 th. This indicates the bond market is pricing in decreasing credit risk for these bonds, which has historically been near term positive for the US stock market. 17

19 Volatility: Near Term Positive With few exceptions, the CBOE Volatility Index has been hovering below since Q This indicates an atypically sustained extreme in investor complacency that has helped facilitate the November post election US stock market rally. 18

20 Options Volume: Near Term Negative The CBOE Put/Call Ratio is retracting from a previous least bearish extreme, indicating a lack of investor fear historically characteristic of near term market peaks. 19

21 Investor Sentiment: Near Term, Intermediate Term Negative A survey of near to intermediate term oriented futures traders is retracting from most bullish extremes that have historically coincided with near term market peaks. Meanwhile, a survey of intermediate to long term focused newsletter writers is also retracting from most bullish extremes, warning of an intermediate term peak. 20

22 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 May low that indicates broader investor participation. Near term bullish. The percentage of these constituents trading above their 200 day MA, however, is declining from previous frothy extremes, warning of an emerging intermediate term market top. 21

23 Overbought/Oversold: Near Term, Intermediate Term Negative SPX is starting to retract from monthly overbought extremes that have previously coincided with near term market tops. Meanwhile, SPX is also hovering at quarterly overbought extremes that have historically coincided with or closely preceded intermediate term market peaks. 22

24 Seasonality: Near Term, Intermediate Term Negative June, the 2 nd seasonally weakest month of the year in the S&P 500, leads into a modest one month rebound in July, the 7 th strongest month, before the 2rd and 1 st weakest months emerge in August and September. This quarterly chart shows that the final three weeks of June include 3 of the 4 seasonally weakest of the entire 2 nd Quarter based on data since

25 Size: Small Cap Poised For Q3 Outperformance IJR (S&P 600) is rebounding from quarterly oversold extremes vs. ITOT (S&P 1500) that have previously coincided with multi month periods of relative outperformance by Small Cap. IJR has already outperformed ITOT by 9% since late May. 24

26 Style: Growth Stocks Testing January Relative Outperformance Trend 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, and is now testing that trend from above amid favorable conditions (monthly oversold extremes) to resume it. Important decision point for upcoming relative direction. 25

27 Sectors: Investor Assets Moving Into Consumer Staples, Out Of Financials Asbury s sector rotation model is currently overweight Materials (Jun 12 th ), Consumer Discretionary and Utilities (Jun 5 th ), Consumer Staples (May 30 th ), and Health Care (May 8 th ). The biggest ETF related sector inflows over the past 1 week, 1 month,and 3 month periods went to Consumer Staples. The biggest outflows over the past 1 month and 3 month periods came from Financials. 26

28 Sectors: Utilities, Materials 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 June 8 th. The most under invested sectors are 1) Utilities, 2) Materials, and 3) Energy. The most over invested sectors are 1) Consumer Discretionary, 2) Health Care, and 3) Industrials. 27

29 Industry Groups: Homebuilders, Health Care Target Additional 17%, 23% Advances The SPDR Homebuilders ETF has already risen by 7% since we initiated a long idea on Feb 22 nd, and still has an additional 17% to go to reach our $45.50 target. The SPDR Health Care ETF has risen by 3% since we initiated a long idea on May 8 th, and still has an additional 23% to go to reach our $95.50 target. 28

30 Industry Groups (2): Biotech, Industrials Target Additional 12%, 3% Advances The mid February breakout from investor indecision in the SPDR S&P Biotech ETF targets an additional 12% rise to $ The SPDR Industrial Sector ETF has risen by 2% since we initiated a long idea on May 30 th, and has an additional 3% to go to reach our $70.30 target. 29

31 US Interest Rates Near Term Negative, Intermediate Term Positive The CBOE 10 Year Note Index is collapsing below its 200 day MA to suggest a major trend change, towards lower long term interest rates and a possible test of 2.0%. Meanwhile, a survey of individual futures trader bullishness on CBOT 10 Year Notes (which move opposite to yield) is rising from least bullish extremes. Positive. 30

32 Precious Metals (Gold, Platinum) Intermarket Relationships, Commercial Positioning Are Bullish The tight and stable positive long term correlation between long dated Treasury prices and gold prices suggest that an upcoming rise in CBOT 10 Year Notes and decline in yields, per the previous slide, should coincide with a continuation of the 2017 rise in gold prices. Commercial hedgers in platinum, which is positively correlated to gold, are hovering at a net long extreme in the futures market. This represents an aggressive bet by the smart money that prices are undervalued. 31

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