A couple of other questions came in from last weeks “Ask me Anything” blog
Below are the answers to my questions. Before presenting the questions, I thought I would do a super-brief follow-up on my market observations from last weeks market commentary blog. A few people were wondering about strategy. While I can’t provide you with advice as to how you should invest, I can relay how I am looking at managing the ValueTrend Equity Platform.
The current ValueTrend strategy
Below is a chart, courtesy of a reader of this blog “JP” who forwarded some research by Pension Partners. It’s to the 10th—which was last Wednesday. As you will note, the world has not been a profitable place to invest this year – beyond a small number of countries, including the US. Interesting to see the chart is to the 10th—which did lead into another selloff on the 11th, adding to the pain. But, it’s a data point in time, and it is of interest.
The past two weeks have been pretty much in line with what we at ValueTrend have expected to happen. In that regard, we are far less stressed than other market players who were living in denial. I guess you could call what happened last week the “easy” prediction. As noted in the past, an overinflated balloon is doomed to pop – you don’t know what will be the cause or when it happens. But it will, because it is stretched too tight. So when it happens, you are not surprised, and you were prepared- as we were. The next step is to decide just how much air will come out of the balloon (full deflation, or just a leak) – and when to step back into the new balloon (rising market) as it begins to be pumped up . My balloon analogy is losing momentum here….so let’s drop it for now. What I am trying to say is that deciding when to step back in is harder than the observation that markets were overdone, and the follow-up decision of raising cash.
One could argue for getting back into the market right now – based on the VIX and indicators like my short termed timing system (again, seen on last week’s blog). But – to reprint my answer to one readers (Ray) comment “On the one hand, we have a break of the 200 day SMA. That by itself becomes more meaningful if today’s bounce doesn’t bring it back above, or doesn’t last. I do know that you can see “V” reversals after a sharp drawdown. But more often than those are “complex” bottoms/reversals–meaning choppy action before a turnaround. I’m not sure if I would make a call yet on what is to happen. But it does indeed seem a bit early to call an end to a selloff. We shall see. Perhaps it will turn quickly–but I am not deploying my cash just yet.
Reader Dave asks if rising rates are good for the US banks. Fundamentally, yes they are. Seasonals are in favor for the group as well – financials can do well from November to the spring. But technical come first. And the US banks are at a point of decision. The BMO Equal Wt. currency hedged ETF ZUB is a good barometer for the large banks. This ETF broke first support at $29 recently and is now toying with old resistance (major support) at $28. It may be a buying opportunity, but I will wait to see if support can hold before I commit.
Gold & silver
Reader Fred asks if gold and silver are due for an oversold bounce –despite their longer termed bearish trends.
The gold chart shows that the market is indeed oversold, and bouncing off of a support point. Note all of my circled momentum indicators, which are hooking up. Sentimentrader reports it as a good “oversold sentiment” candidate. It makes sense to think that we will see a move. But that move may be shallow. If your timeframe is short, it might be something to consider.
Silver chart says the same thing. Momentum is hooking up, finding support at an old low. But again, the move may be shallow. Risk and reward, folks. There is risk on these trades.
Currently ZUB is trading slightly below $28. Do you wait three days to see where it shakes out or do yiou give it more time?
Dave in the event of a big macro selloff you usually want to “forgive” stocks from breaking support or trendlines on a temporary basis. Basically, when 3/4 of the market has broken down, you know it is not a unique problem specific to your chosen stock or (in this case) stock sector. I like o wait a bit, let the market bounce, then -see what my given stock or ETF has done. If it can’t react along with a rally in the market–and get back to support then yes, it will be a sign of weakness unique to my stock or ETF. But I don’t get too aggressive in a market selloff unless the broad market starts busting key supports (lower low on the weekly chart, bust of the 200 day SMA)
Hey Keith, big fan, Where do you typically park your 20% weighting in cash while you wait to pounce back ? High Yield Savings, T-Bill ETF, plain old cash ?
Hi Warren–all of the above! If I expect to hold it for a while as I did for the summer, I go HISA (high interest savings account) or a t-bill. If it’s just a short period–plain old cash.
hi Keith sync lavalin took a big hit over their past problems. do you think it is market over reaction
and could be a good entry point before it closes the big gap that it went down . it went back up a pretty good jump today. do you play gaps down or up scenarios.
It could be an overreaction. Please see my reply to Dave regarding macro selloffs and “forgiving” stocks during such periods. If SNC does not recover to prior support once markets start heading up- I exit.
How do we know when to get back in the market does someone ring a bell?
I wish that somebody did
I look for a series of up/down days that look like a base, and buy on the breakout/ I also keep end of October in mind as a good seasonal period to buy–if the two come together, that’s where I will step in. so far it looks like the base is building–very encouraging.
I’m guessing a lot shorts were scrambling to cover today