Monthly Investment Compass Charting The Course Of The Markets

Transcription

1 Monthly Investment Compass Charting The Course Of The Markets January 12 th, 2017

2 Monthly Investment Compass Executive Summary: January 12 th 2017 U.S. Stock Market: A number of near term metrics warn of a 1 st Quarter corrective decline. However, unmet upside targets in both US and positively correlated overseas markets suggest that, corrections aside, there is at least an additional 9% to 10% rise in store for the major US indexes later in Size: Large Cap stocks, and particularly Large Cap Technology, are amid favorable conditions to outperform during the 1 st Quarter and potentially into 2 nd Quarter Style: Growth stocks are amid favorable conditions to outperform the S&P 500 over the next 1 2 quarters. US Market Sectors: Our sector rotation model is currently overweight Health Care, Real Estate and Utilities. US Interest Rates: We expect the yield of the 10 Year Treasury Note to decline from 2.63% during the 1 st Quarter, perhaps to the 2.30% to 2.00% area, before moving back to and potentially above 3.00% later in Gold: We are expecting a 1 st Quarter rebound that leads into a deeper decline later in The US Dollar: We are expecting a 1 st Quarter corrective decline in the greenback that leads into the resumption and continuation of its 2016 advance. 1

3 Price & Trend (1): Dow Industrials, Transports Target Additional 2% to 9% Advance The April 2016 breakout from investor indecision in the bellwether Dow Jones Industrial Average targets an additional 2% rise to 20,400. The July 2016 breakout in the Dow Jones Transportation Average targets an additional 9% rise to Currently testing major resistance at

4 Price & Trend (2): NYSE Targets Additional 10% Advance, COMP Breaking 2000 Highs The July 2016 breakout in the NYSE Composite targets an additional 10% rise to 12,300 but is testing formidable overhead resistance at 11,255. After testing secular overhead resistance at 5133 for 2 years, the NASDAQ Composite is finally rising above it. Long term positive for market leading tech. 3

5 Price & Trend (3): Beware Of A Small Cap Led 1 st Quarter Broad Market Correction The Russell 2000 met our 1400 upside target in December, based on its May 2016 breakout, to capture a 21% advance. Peaks often emerge once targets are met. Should there be a 1 st Quarter broad market pullback/correction as expected, underlying supports in SPX are situated between 3% and 7% below the market. 4

6 Intermarket Analysis (1): Positively Correlated Taiwan Index Targets 9% Rise The Taiwan Index s July 2016 breakout continues to target an additional 9% rise to 10,200 that will remain valid above The tight positive correlation between Taiwan and the S&P 500 indirectly suggests more upcoming, overall strength in the US market. 5

7 Intermarket Analysis (2): Smart Money Bet On Rising Treasuries Negative For Stocks Commercial hedgers are holding a big net long extreme in T Bond futures that represents an aggressive bet on a 1 2 quarter decline in long term rates. The positive correlation between the yield of the 10 Year Treasury Note and S&P 500 indirectly suggests an upcoming shift out of stocks and into Treasuries. 6

8 Long Ideas (1): AET, FB Target Additional 24%, 4% Rise The November breakout in Aetna targets an additional 24% rise to $ that will remain valid as long as the 200 day MA at loosely holds as major support. The January 6 th bullish reversal in Facebook targets an additional 4% rise to $ that remains valid above the 50 day MA at

9 Long Ideas (2): MA, HOLX Target Additional 12%, 20% Advance The September breakout in Mastercard, Inc. targets an additional 12% rise to $ that will remain valid above $ The December 13 th breakout in Hologic, Inc. targets an additional 20% rise to $49.00 that will remain valid above $

10 Momentum: Positive, But Peaking. Watch Monthly Rate Of Change. The MACD, an intermediate term metric, is retracting from a positive momentum extreme that has previously coincided with multi month stock market peaks. However, it would take a negative shift in SPX s currently positive 1 month rate of change to confirm that the decline the MACD warns of is actually underway. 9

11 ETF Asset Flows: At A Near Term Inflection Point. Watch QQQ. Expanding total net assets invested in the SPDR S&P 500 ETF have fueled the postelection rise in the S&P 500, but that expansion has been stalling recently. Meanwhile, the total net assets invested in QQQ are hovering just above $41.5 to $40.8 billion. A decline below there would be negative for the market leading NASDAQ

12 Corporate Bond Spreads: Near Term Positive High yield corporate bond spreads have been narrowing since November 21 st. This indicates the bond market is pricing in decreasing credit risk, which is historically positive for the US stock market. A rise above 416 basis points would be negative. 11

13 Volatility: Near Term Negative The CBOE Volatility Index has been hovering at a complacent extreme of since mid November, one which has historically either coincided with or closely led every near term US broad market peak over the past several years. A rise above the VIX s 50 day moving average would indicate another market decline is beginning. 12

14 Investor Sentiment: Near Term Positive, Intermediate Term Negative A survey of near to intermediate term oriented futures traders is rising from least bullish extremes on SPX that has historically coincided with market advances. However, a survey of intermediate to long term focused newsletter writers has already reached most bullish extremes, characteristic of an intermediate term top. 13

15 Market Breadth: Near Term, Intermediate Term Negative The percentage of NYSE Composite stocks trading above their 40 day MA is hovering at a frothy extreme of 71% that has previously coincided with near term market peaks. In addition, the percentage of constituents trading above their 200 day MA also at a frothy extreme, of 73%, that has led more significant intermediate term market declines. 14

16 Overbought/Oversold: Near Term, Intermediate Term Negative SPX is hovering at monthly overbought extremes that have previously coincided with or led every near term US broad market peak during the past year. In addition, SPX has also recently reached quarterly overbought extremes that have historically preceded more significant intermediate term market peaks. 15

17 Seasonality: Near Term Negative, Intermediate Term Positive January is the 6 th seasonally strongest month of the year in the S&P 500, marking a significant decline from December, the strongest month, and leads into more weakness in February, which is the 4 th weakest month. This chart shows that the first week of January is the 2 nd seasonally strongest of the entire 1 st Quarter, after which the S&P 500 weakens into mid January and again into late February. 16

18 Size & Sector: Large Cap, Large Cap Tech Poised For Q1 Q2 Relative Outperformance IVV is rebounding from quarterly oversold extremes vs. ITOT. Previous instances of this have triggered multi months periods of relative outperformance by Large Cap. Meanwhile, NDX is rebounding from quarterly oversold extremes versus SPX. Previous instances of this have led periods of relative outperformance by Technology. 17

19 Style: Growth Stocks Poised For Q1 Q2 Relative Outperformance The S&P 500 Growth ETF (SPYG) is starting to rise out of quarterly oversold extremes versus the S&P 500 (SPY). Previous similar extremes have historically led multi month to multi quarter periods of relative outperformance. 18

20 Sectors Investor Assets Moving Into Health Care & Technology, Out Of Industrials & Staples Asbury s sector rotation model is currently overweight Health Care, Real Estate (Jan 9 th )andutilities (Dec 19 th ), while moving to market perform in Energy (from outperform on Oct 17 th to capture 2% of outperformance). The biggest ETF related sector inflows over the past month went to Technology, and over the past 3 months went to Financials. The biggest outflows over the past month came from Industrials, and over the past 3 months came from Consumer Staples. 19

21 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 January 5 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. 20

22 Asbury Research s Correction Protection Model: Be Invested and Protected 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 or out of it. 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. 21

23 US Interest Rates Net Long Treasury Position By Smart Money Suggests A Back Up In Rates Commercial hedgers are at a multi year net long extreme in the T Bond contract that represents an aggressive bet by the smart money on declining interest rates. Meanwhile, the yield of the benchmark 10 Year Note is declining from 2.63% and appears poised to test at least 2.36% to 2.30%, and potentially 2.00%. 22

24 US Interest Rates Rising Treasury Prices, Declining Long Term Rates Is Bullish For Gold It would take a sustained positive shift in the T Bond s 1 month rate of change to confirm that the commercial hedgers bullish bet is working. The inverse correlation between 10 Year Treasury yields and gold indirectly suggests that gold prices are headed higher during the 1 st Quarter. 23

25 Gold Bullish Smart Money Bet On Platinum Positive For Gold, Negative For Interest Rates Gold and platinum prices have maintained a tight and stable positive correlation to one another since 2000, most recently 83% since October. Smart money commercial hedgers are also very bullish on platinum, which indirectly corroborates both our positive call on gold and negative call on rates. 24

26 The US Dollar A Gold Rebound Suggests A Q1 Corrective Decline Versus The Euro Gold prices have been inversely correlated to the US Dollar since Therefore, rising gold prices should coincide with a declining US currency. Although this chart shows that the Dollar is making a bullish secular change versus the euro, per the slide at left we should see a 1 st Quarter decline as the euro rebounds. 25

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