Bull, Bear, or neither?

I’m writing this before the market opens on Monday Feb. 24th. Coronavirus scares are hitting futures across the globe hard this morning. By the time most of you read this, you’ll already know what the outcome of the market will look like. So I wont comment on what is likely to happen today. I’d like instead to take a shot at what the mid-termed outlook (next few months) looks like.

As with most times, there are bullish and bearish signals on the market right now. The trick is to “place your bet” with the side that seems to be most dominantly skewed. Even then, we don’t want to fully commit to either side. It is for this reason that the ValueTrend Bear-o-meter assigns cash ranges to each of its 3 risk/reward ranges. In early February, I noted on this blog that the bear-o-meter went from a firm “4” (neutral) score in January to a less positive score of “3”. As such, I noted on that blog that we at ValueTrend had raised our cash levels, and have been holding a bit of gold/silver. Our Equity Platform is around 12% cash and 4% gold and 2% silver as I write.

It’s not prudent to make strong assertions about the direction of the market. However, many of the media orientated financial pundits gain fame and fortune by making such assertions. Troy Bombardia of sentimentrader.com gave me a chuckle when he described in a recent research report how this process works:

  1. Pick 1 side of the market. Do not flip flop. 
  2. ONLY present the arguments that support your bullish/bearish stance. Hide any evidence that doesn’t support your argument.
  3. Hype things up. If something is a little bearish, show your readers how the factor is crazy crazy crazy bearish. If something is a little bullish, show your readers how the factor is crazy crazy crazy bullish. 
  4. Let everyone know you’re here to just “pay it forward and help others out”.
  5. If your market outlook has been wrong for a while, don’t worry. Since the market never only goes in 1 direction, “eventually” you’ll be right! When you’re right, tell every what a genius you are. Cover up the fact that you’ve been wrong for a long time before being right.

Let’s use Troy’s lesson in confirmation bias and attempt to asses the market from as unbiased perspective as possible. I’m going to be very big-picture here. Clearly, I could get into more technical factors on both bull and bear cases. But I want to focus on what’s really important.

 

In the bull corner

The trend is your friend until it ends”, as is said. The S&P 500 shows clear signs of remaining in an uptrend. Seasonality is also positive for this time of the year.

Positive trend analysis shows:

  • SPX remains above its 10 year trendline.
  • SPX remains above its 200 day SMA (blue line) and has held higher peaks and troughs.
  • MACD is hooking down (weekly) indicating neartermed weakness – but no divergence seen. Divergences occured in 2014 (pre-summer 2015 correction) and in early 2018 (pre December correction).
  • Higher highs, higher lows.
  • And lets not forget the Fed. It’s not a technical factor, but it’s important to note that the Fed has driven this market. It remains accommodative.

In the bear corner

Sentiment has, once again, gone goofy. Momentum has gone into overbought territory. For instance, no sooner had I reported that the Smart/Dumb money spread had returned to “neutral” in my Bear-o-meter report of two weeks ago (see link at top of blog)- its gone right back into bearish territory. This is disturbing.

  • The AIM (Advisor and Investor survey Optix) is another broad survey optix put together by sentimentrader to illustrate the relative confidence of cross section of retail investors and their advisors. its not as good an optix as is the smart/dumb index for makiing market predictions, but when its high (high optimism) in conjunction with other studies like smart/dumb, and overbought signals – it adds further input. Its high right now. Chart below.
  • MACD is high and hooking down. So too are the shorter momentum studies like RSI and stochastics. Those two have been negatively diverging for a while. That’s all neartermed bearish stuff.
  • Cumulative moneyflow (A/D) remains bullish. That’s mid termed bullish.

 

Conclusion

You already know what I’m going to say. The big picture (trend, moneyflow, Fed, seasonality) is bullish. The neartermed picture (sentiment, momentum) is bearish. Next support likely resides around the 200 day SMA level around 3100. This is likely to be a great buying opportunity folks. Prepare to engage with full phasers and photon torpedos. Watch for a couple of days of stability before engaging.

 

Upcoming events

Keith on Bloomberg BNN TV this Friday Feb 28 at 6:00PM. If you have questions about the technical analysis of stock trends for individual stocks, be sure to phone in with your questions for Keith during the show. Call Toll-Free 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to [email protected]

 

The recent webinars are available on our YouTube Channel ValueTrend Canada.

Below are the links directly to each previous webinar and the latest webinar will be uploaded this week on our YouTube Channel.

The next Webinar features ValueTrend Fundamental Analyst Craig Aucoin, CFA. He will discuss how we tie fundamental factors in with technical factors in selecting stocks. Link to the next webinar here.

Link to surveymonkey response link here

ValueTrend Webinar #1 Technical Analysis Basics link here.

ValueTrend Webinar Bear o Meter link here

 

Limit your risk in the next stage of the stock market cycle

I basically never “pitch” our services on this blog, but I thought I might just sneak one small word in on this one. The current selloff  might be a reminder to some of the readers that things can change. North American stock markets, in our opinion, are close to becoming fully valued. Buy & hold portfolios are not the answer in the late stage of a bull market. When things change, and they will, most investors become like deer in the headlights.

It is our strong conviction that the investors who profit over the next 3-5 years will be those who are willing to adapt to the ongoing cycles and trends that occur during the final stages of a growth cycle.  Our Wealth Management services will ensure that your portfolio is well positioned in light of these cycles.  If your current advisor(s) are not providing you with the level of service and investment management that is necessary to deal with today’s realities, perhaps it’s time to take a look at ValueTrend. Here, you can choose an approach to wealth management that is far different to that provided by traditional brokerages and money managers. You’ll welcome our friendly, personal alternative to the cold, detached traditional investment houses or big-bank firms.

We’re happy to meet with you in total confidentiality at any time to discuss your personal situation, and how we might make your portfolio both in line with your objectives and profitable. Reach out to Aleks Bozic at 705 721 8736.

Aleks will arrange a personal and confidential call or personal meeting with Portfolio Managers Keith Richards and Craig Aucoin to discuss how we can help you limit your risk, and keep your money in turbulent times.

9 Comments

  • Hi Keith,

    A few weeks ago I was asking you about canadian materials ETF XMA.TO. Since two trading days, it finally has made it above 15.00. Zooming back, it looks… so good. A multi-year breakout. I’m curious if you have noticed that too and agree with me, or, think my enthousiasm is misplaced. Yes, there is an ETF that only contains gold/silver miners, XGD.TO, but the chart of XMA.TO has just broken-out, and, still contains 50% gold/silver miners. And will likely be less volatile since it contains other types of material producers, such as forestry (lumber is near ATH).

    Thanks!
    Matt

    Reply
    • Yes, I would still give it another day or two to verify (I use an absolute minimum of 3 days for breakouts). If it stays above $15, the case for legging in is probably pretty good. Nice long base to present ample upside opportunity!

      Reply
    • Yes–I have a threshold of 20+ for the vIX to enter into “buy” territory. It closed at 25 yesterday. It’s just one factor, but good to see at least that as a positive development. Not to say it cant go higher — 2015 it saw 40, and in 2018 it saw 37 and 36.

      Reply
  • I noticed a move in the yen. Could this sell-off around options expiration be a be a carry trade adjustment? Coronvirious is not a new story but a cover story.

    Reply
    • I’m not sure if I’m qualified to offer an opinion on that question Bert, but food for thought

      Reply
  • Looks like the vix is heading to at least 35 now. This market pullback is way overdue

    Reply
  • Methinks the 3000 on SPX level should hold could be a good time to get back in the market then. The 200 day ma is there but also there looks to be support there as well.

    Reply

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