What to do, what to do?

As noted on this blog, the market is in a Ying & Yang situation. Ying: Trend is up. Yang: Its overbought. What to do what to do? Various thoughts on this topic below.

It appears that there may be a bit of giveback coming after the recent parabolic rise. I can’t say that a pullback would be a “big one”. I suspect not, although a return near the 200 day SMA (4660 currently), or perhaps near the 2022 peak near 4800.

Keep in mind that April is a seasonally strong month, so any correction may be delayed until later this quarter or in Q3.

Here’s the chart – note how overbought every indicator is:

 

Michael Lewis (The Big Short, Moneyball, Liars Poker and others)

Michael Lewis has made a career of examining bubbles and busts. You might say he’s an authority on the subject. His recent comment on today’s overbought market:

“Until PROVEN wrong, equity investors will shrug it off, and believe what has helped them make money since 2009… ‘everything is gonna be fine’.  SO… Carry on… But the things to worry about are starting to become more and more present.”

A common investing myth

Here’s a short “One minute interview” I did on a key misconception in investing. Hope you enjoy it – please share it with anyone you think is caught up in this common investment myth: (122) Keith G Richards – YouTube

I love gold, Mr. Powers

Gold chart

This chart, like many I post, retains my trading notes and lines going back many years. Gotta like the recent breakout! Its a bit overbought, so we may see a pullback.  But… “breakouts be breakouts”!

 I love oil too, Mr. Powers.

The shift in Russia’s oil strategy is surprising. Supply/demand response, Russia’s actions could push Brent price to $90 in April, reach mid-$90 by May, and close to $100 by September, keeping pressure on the US administration in the run-up to elections.” JP Morgan

Oil chart below, with my old notes and annotations on it. Current resistance has been observed over a long period of time. If $85-ish breaks, I’ll bet that JP Morgan’s estimate of $100 is conservative. First thing first – we need to see $85, currently being challenged, break with vigor. Methinks it will. Note that momentum indicators are NOT overbought – not to mention the bullish seasonal pattern for oil is upon us.

Sector Rotation

VT Equity Platform numbers were posted yesterday.  The platform performed well due to our foresight on buying materials, energy and value stocks over the winter. Our sector rotation model, which is described in my Online Trading Course pointed these sectors out before the crowd discovered them. Our mandate is to deliver solid performance at below market risk.

The Aggressive Strategy takes  bigger positions in higher beta plays.  You might want to check the one year performance of that strategy. Picture taking the same sector rotations we employ within our more conservative strategy, but ramping the potential up by holding larger positions, earlier, and in more niche stocks.

This excerpt from an email conversation I had with a client after discussing our recent good performance sums it up.

“We tend to move on emerging rotations in sectors and stocks.  We look forward, not backwards. So rather than pure trend momentum looking only at what has been working, we look for early signs of rotation. My sector rotation model looks at potential shifts in strength that are in the very early stages. It’s a game for the patient. 

Those emerging trends—in this case value stocks, materials, oil  – will sometimes remain stagnant for a short while before the move happens. Seems our patience is paying off again- often the case (we often  lag a bit before proven right). That’s how Buffett works too, so we are in good company. He is a forward thinker.”

Contact us to find out more about ValueTrend’s Portfolio Management services for your portfolio.

Contact Us | ValueTrend

4 Comments

  • Generally a sharp rise in oil prices to near all time highs would be a negative for stock prices. So maybe that will initiated a much needed correction in the overall markets.

    Reply
    • I don’t know about “generally”, but certainly it can happen–aka oil charged in 2007 and 2021 leading into bear markets. I’ve done correlation studies of many assets against the SPX, and oil is fairly often non correlated (aka no firm relationship) to the SPX. But yes, there have been cases of it leading a correction.
      I think rising oil implies inflation, given the impact it has on so many levels through the supply chain (of course, Trudeau & Guilbeault have not studied economics so they don’t understand this relationship- hence the ignorant use of the carbon tax). Higher inflation means corporate growth struggles, which can impact growth stocks of course.

      Reply
    • One day doesn’t confirm anything. We shall see. It will happen sooner or later, no matter the case!

      Reply

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