The long-term buy and hold investor is becoming discouraged and leaving the market. You can see this through volume patterns, which have declined since 2008. I’ve marked a trendline on volume for the Dow to illustrate this fact. Factors causing the low volume include:
- the 2008/2009 bear market,
- the flash-crash,
- high-frequency trading programs,
- the real estate crash & high unemployment (negative wealth effect discourages investing),
- scandals amongst large corporations,
- an overpriced Facebook offering, and others.
These factors have probably caused the demise of the “Average” investor. Who can blame them for not buying and holding stocks or mutual funds? It’s not been too profitable for them to do so for a decade, and it’s been an outright losing strategy to buy and hold since 2008.
The demise of the buy-hold investor has fed into market volatility. As such, inverse ETF’s and other hedging strategies are increasing in popularity. This increased usage of hedging ETF’s has created new contrarian sentiment indicators. For example, sentimentrader.com tracks a composite of inverse ETF’s trading on U.S. stock exchanges. The chart below shows combined volume in the most popular inverse ETFs relative to total US exchange volume for the past three years. The chart shows that when traders rush into the inverse ETFs, pushing that volume to 0.5% or more of total exchange volume, the market has tended to rally soon thereafter. While the chart shows we are in the “overly pessimistic” territory for this indicator, it may spike a little higher, as it has in the past, before markets begin to rally in earnest. Thus, I continue to hold a hedging element in the equity platforms that I manage on behalf of clients. If nothing else, this helps to neutralize the portfolio from European political events in the coming weeks.
Keith on BNN
I was on BNN television this week to talk about the technical outlook for June. I presented 3 stock picks that might benefit from current market movements.
I will also be on MarketCall on Friday June 29th at 6pm for the full 1-hour interview with Mark Bunting. Don’t miss it!
I know lots of the Investment Advisors from my earlier days as a retail broker with a bank-owned firm, and have occasion to chat with some of my old colleagues once in a while.
There seems to be an overwhelming theme amongst the Investment Advisory community right now, which is: Client portfolios will continue to suffer in the current environment until the bull market eventually returns. Awaiting the return of a bull market is not a strategy. It is a hope. One should not manage their own money or that of others based on hopes. Instead, why not learn to implement a strategy that employs technical analysis to limit your risk, and increase the potential for returns? If you’ve not had much luck with Advisors, or you find that you just don’t have the time or skills to manage your portfolio on your own, I invite you to contact me to discuss your unique situation at [email protected] . Beyond providing personalized investment strategies and an asset allocation plan that fits your needs and goals, ValueTrend offers discretionarily managed models that utilize both technical analysis and fundamental valuation techniques. Your portfolio will hold the right asset allocation, with the right securities held at the right time for your needs.