Is it a bull market, a bear market…or neither? Thats the question of the day – and my answer, based on some evidence we’re going to look at today, suggests that it remains a sideways, or “meh” market – until proven otherwise. Like when somebody asks you how you feel. Good? Bad–or “meh..”
Back in October of 2014, I began suggesting to attendees of my MoneyShow presentation – and to BNN viewers/ blog readers – that the market would evolve into a “stealth” market. That is, one that doesnt necessarily have a strong trend. Instead, I felt the market would display the tendency to shift leadership continuously. Another term for a stealth market is a sector rotational market. As you can see on the chart below – the S&P did in fact leave its bull trend, and enter into a prolonged sideways period (with a lid at or near 2130) after my talk at the MoneyShow that October. This, despite uptrending moneyflow. Strange, but true!
Despite the sideways “stealth” market – there were some amazing plays to be had over 2015 –provided you rotated either between sectors, or in and out of the market. For example, we profited nicely by broad-equity selling in April and re-buying in early October. We had some nice sector rotation plays in and out of tech stocks (out in the spring, in again October) and thorough oil’s bounces over the early months of 2015.
When viewing the broad markets during a sideways period – the value of momentum indicators and Bollinger Bands in helping you identify key entry and exit points is amplified. I have covered a trading system using such indicators several times over the past year, including here.
Assuming a continuation of the “meh” market, it is my opinion that these indicators – and the system presented in my prior blogs (or similar system) – will be invaluable for exit and entry timing for the coming months. Basic chart analysis suggests that if markets continue moving range-bound, we will see support at 1990 (neckline of the summer’s double-bottom) and major resistance at 2100-2130. I am preparing to sell at or near resistance at this time – unless new leadership suddenly emerges. Don’t count on it.
At ValueTrend, we rotated sectors, and rotated in and out of cash via macro-analysis in 2015. Our turnover – which represents the amount of trading we did – rose to 260% in 2015 vs. our normal level of closer to 100%. This active trading afforded us a successful year, despite the flat markets. Our year end performance hasn’t been posted yet, but it does look favourable. Our November numbers coming out of Paterson & Associates put us as #6 out of 66 “Canadian Focused” managers in Canada – for both our short and long termed risk adjusted performance – and as or more importantly – our monthly standard deviation was the second lowest in the country.
I’d like to continue suggesting to you that trading within sectors – along with macro decisions to move into cash and back to equities again will remain important in your efforts to earn profits in your portfolio. I do hope that some of the thoughts I presented in this blog over the past year were helpful to you in outperforming the markets. Happy holidays, and all the best in the New Year to you and your family.
This blog is my only entry for this week – back again next week for my usual twice a week entry.