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.
Thanks for taking the time to blog and Happy New year and Happy successful trading in 2016 , waiting for energy bounce 🙂
Sooner or later on energy. Patience is key.
“Slowly slowly catchy monkey” as is said.
Keith, Thanks for sharing your technical analysis and trading system. I really enjoy reading your blog, it has been helpful as a trader and as a student of the market.
Just saw the movie The Big Short – Entertaining, but it did make me relive that sick feeling I had in 2007. It reinforced the importance of the macro view. The stealth market conditions that you identified is very insightful.
Happy New Year!
Well now I just gotta see The Big Short!
And yes–IMO, macro trading is not only just as important, but possibly more important now than when I started speaking of the “stealth” market 15 months ago.
Put it this way–what happens now when the market no longer has Fed stimulation, valuations are not cheap, and earnings/growth look to be flattening? If its not an earnings driven market-or if its not driven by some type of catalyst -its a flat trading market. Like I said, I wait for a catalyst before a breakout is likely to occur. None that I can think of…yet.
FORECASTING: MUCH OF AN ART THAN A SCIENCE: “IT’S TOUGH TO MAKE PREDICTIONS, ESPECIALLY ABOUT THE FUTURE” (…) (YOGI BERRA).
TOUGH ALSO TO SEE A BULL MARKET WITH THESE RATIOS NOT BEING INVERSED:
XLP LEADING, XLY TRAILING
$UTIL LEADING,$TRAN TRAILING
$SPX LEADING, $RUT TRAILING (IJR AND IJH AS WELL)
$JNK DOWN THE DRAIN (ESPECIALLY IN THE OILPATCH)
$TIP NOT SHOWING INFLATION (COMMODITIES?)
ALL WORLD INDEX UNDER 200DMA ON A 5 YEAR DAILY CHART (ACWI), INCLUDING GERMAY ($DAX)
JUST HEARD THAT THE FINANCIALS AND THE INDUSTRIALS HOLD THE KEY TO THE BULL
WE ARE TESTING THE UPPER LIMIT OF DECLINING TREND CHANNEL (2085-2090) WITH A POSSIBLE BULL FLAG PATTERN
WHERE IS MY MARKET CATALYST ON THE UPSIDE?
J.P. CSTA, MONTREAL
Yes–it is strange to see utilities and staples outperforming right now. It didn’t start off that way in the fall–discretionaries started to move nicely for example, but the current moves are either ..telling … or a blip. We shall see.
Either way, you know I remain believing in the “meh” until proven otherwise!
Happy New Year JP!
HAPPY NEW YEAR KEITH.
lately oil made a new low but xeg did not.
What do you say to that.
Vella–Happy New Year too!
If the producers start to bottom, that can be a good sign. I saw this myself–I am watching the sector. Seasonal’s come into play in February–that might be the safest time to jump in. We’ll see. I’ll blog on it in a while.
Hi Keith ,
I want to thank you for taking the time to teach about technical analysis. I very much appreciate your insights and follow-up approach to your lessons. I started reading/listening to you in February 2015, and this is the first year that I have beaten the indexes( ever).
So thank you Keith, please keep educating, and I wish you a prosperous 2016!
That’s great to hear Chris. But don’t tell a buy n’ hold investment advisor – it would really bug them to know that this “market timing” stuff can actually work!
By us commenting and reading your blog I can only hope you recognize the value and appreciation we have for your commentary.
In one of your recent posts you forecasted a rally into the first week of Jan. I believe that would mean this week. The SC rally I don’t think you would say occured this year. Today (Jan 4) we are seeing a significant sell off. China shut down their markets after their manufacturing index dropped below 50.
You suggested your plan after the first week of Jan rally would be to sell in early Jan.
With S&P 500 not looking like 2100 is possible now, what is your current strategy for the next couple of weeks?
Good question Daddyo
Yes–the plan was to take advantage of a Santa rally–which started to look real until last Thursday. Hey–thats the market–not 100% predictable!
So I am watching 2 things. I want to see 1990 (or so) hold on the S&P500-which it is testing today-that’s the neckline of the summer double-bottom. If it holds–i will still look to sell on a rally to somewhere near 2100–although perhaps lower.
If 1990 cracks for more than 3 days, I will sell and wait for the lows of the summer around 1880 as a potential buy point.
You have to be dynamic in this environment–play it as it happens!
Would you continue to have a favourable outlook on BB&T for the long term? It has pulled back to a little over $36. Are you concerned with this pullback. Would you consider it to be a buy at these levels? Thanks.
everything is getting hammered today–its at support –not a concern, I still like it for a play into the spring
Keith, I just want to add my voice to the chorus of Chris, Daddyo, and others : real happy I found your blog, as your honest and informed feedback has become a regular part of my analysis… Hope you’ll continue it for years 🙂
As someone who is still just getting comfortable trading, I especially like when you mention sectors to watch. Trading in sector ETFs makes it easier to follow and understand macroeconomic trends on shorter timescales than I’m used to.
That said, when you say you’re watching the S&P for a sell (followed by a possible buyback) do you literally mean the ‘whole’ S&P index (through an ETF), or more specific sectors?
Recently a prospective client asked me when I retire. Craig (my associate) chimed in and said “there are only three things Keith cares deeply about: Family, bike racing, and technical analysis”.
This blog is an extension – beyond my professional trading – of that love for the art and science that is technical analysis.
Your question: when I speak of the S&P–I use it for macro calls–so I will sell specific stocks and sectors when I perceive the broad markets overdone–and visa versa when they appear attractive. We use sectors and individual stocks and look at their alpha, seasonality tendencies, and unique patterns. Some of each (stocks and sector ETF’s)–and sometimes even broad market ETF’s for a trade. But the macro work really does dictate a lot of what we do. Individual stocks are screened fundamentally. But the buy sell decisions are more or less left in my hands as the technical guy.