Major Market Buy/Sell Review: 12-16-19

Each week we produce a chart book of the major financial markets to review whether the markets, as a whole, warrant higher levels of equity risk in portfolios or not. Stocks, as a whole, tend to rise and fall with the overall market. Therefore, if we get the short-term trend of the market right, our portfolios should perform respectively.

HOW TO READ THE CHARTS

There are three primary components to each chart:

• The price chart is in orange
• The Over Bought/Over Sold indicator is in gray
• The Buy / Sell indicator is in blue.

When the gray indicator is at the TOP of the chart, there is typically more risk and less reward available at the current time. In other words, the best time to BUY is when the short-term condition is over-sold. Likewise when the buy/sell indicator is above the ZERO line investments have a tendency of working better than when below the zero line.

With this basic tutorial let’s review the major markets.

S&P 500 Index

• No change from last week.
• With a “buy signal” triggered, there is a positive bias, however with both the price and “buy signal” very extended we expect a short-term correction for a better entry point to add exposure.
• Given the deviation from the mean, and the more extreme overbought condition, it is advisable to wait for some consolidation/correction before increasing equity allocations.
• Short-Term Positioning: Bullish
  • Last Week: Hold position
  • This Week: Hold position with a bias to add to holdings.
  • Stop-loss moved up to $300
  • Long-Term Positioning: Neutral due to valuations

Dow Jones Industrial Average

• DIA broke out to new highs with the reversal of the “buy” signal to the positive. However, that buy signal is pushing some of the higher levels seen historically so a correction is likely.
• Hold current positions, but as with SPY, wait for a correction before adding further exposure.
• Short-Term Positioning: Neutral
  • Last Week: Hold current positions
  • This Week: Hold current positions.
  • Stop-loss moved up to $270.00
• Long-Term Positioning: Neutral

Nasdaq Composite

• Like SPY and DIA, the technology heavy Nasdaq has broken out to new highs but is pushing very extended levels.
• The Nasdaq “buy signal” is also back to extremely overbought levels so look for a consolidation or correction to add exposure.
• However, as with SPY, QQQ is EXTREMELY overbought short-term, so remain cautious adding exposure. A slight correction that alleviates some of the extension will provide a much better entry point.
• Short-Term Positioning: Bullish
  • Last Week: Hold position
  • This Week: Hold position
  • Stop-loss moved up to $195
• Long-Term Positioning: Neutral due to valuations

S&P 600 Index (Small-Cap)

• As noted previously, small-caps broke out above previous resistance but have been struggling.
• Last week, small-caps successfully tested the breakout level, there is now a bias to add exposure.
• This past week we added a small-cap value fund to the ETF Portfolio and are looking to increase that exposure opportunistically.
• We will wait to see where the next oversold trading opportunity sets up.
• Short-Term Positioning: Bullish
  • Last Week: No position
  • This Week: Added small-cap value fund 2% weight.
  • Stop loss set at $67
• Long-Term Positioning: Neutral

S&P 400 Index (Mid-Cap)

• MDY is holding up better than SLY and has broken out to new highs.
• MDY has a short-term “buy” signal, but needs a slight correction/consolidation to reduce the extreme overbought and extended condition. The buy signal is very extended as well.
• Look to add exposure to the market on a pullback that doesn’t violate support.
• Short-Term Positioning: Neutral
  • Last Week: No holding
  • This Week: No holding
• Long-Term Positioning: Bullish

Emerging Markets

• EEM continues to underperform but turned up with the conclusion of the trade deal and more QE.
• With the “buy signal” extremely extended, the set up to add exposure here is not warranted. Watch the US Dollar for clues to EEM’s direction.
• As we noted last week, PAY ATTENTION to the Dollar (Last chart). If the dollar is beginning a new leg higher, EEM and EFA will fail. However, that doesn’t seem to be the case and we are looking to add exposure to the sector.
• Short-Term Positioning: Bearish
  • Last Week: No position
  • This Week: No position
  • Stop-loss set at $41
• Long-Term Positioning: Neutral

International Markets

• Like EEM, EFA rallied out of its consolidation channel and broke out. WE can now look to add exposure opportunistically to portfolios.
• Like EEM, it and the market are both EXTREMELY overbought.
• Be patient for now and wait for a slight correction to add holdings.
• Short-Term Positioning: Neutral
  • Last Week: No position
  • This Week: No position.
  • Stop-loss set at $64
• Long-Term Positioning: Neutral

West Texas Intermediate Crude (Oil)

• Oil is finally showing some signs of life by breaking above the downtrend resistance line from the 2018 highs.
• There is a short-term buy signal for oil and with the break above the 200-dma we are looking to add XLE if it can confirm the breakout.
• Last week we added AMLP to portfolios as well.
• Short-Term Positioning: Neutral
  • Last Week: No position
  • This Week: Added 1/2 position of AMLP
  • Stop-loss for any existing positions is $54.
• Long-Term Positioning: Bearish

Gold

• Gold got back to oversold and broke support at the 200-dma previously.
• This past week, the dollar weakened and gold improved its positioning.
• We took the opportunity to take our GDX and IAU positions back to full weightings.
• Short-Term Positioning: Neutral
  • Last week: Hold remaining position.
  • This week: Took holdings back to full weight.
  • Stop-loss for whole position adjusted to $132.50
  • Long-Term Positioning: Neutral

Bonds (Inverse Of Interest Rates)

• Bond prices had a nice rally on Friday but was not enough to reverse the sharp sell-off earlier in teh week.
• Bonds remain in a downtrend currently, but are extremely oversold. I suspect that we are going to get some economic turmoil sooner, rather than later, which will lead to a correction in the equity markets and an uptick in bond prices.
• Use any bounce to rebalance holdings.
• Short-Term Positioning: Bullish
  • Last Week: Hold positions
  • This Week: Hold positions
  • Stop-loss is moved up to $132.50
  • Long-Term Positioning: Bullish

U.S. Dollar

• This past week, the dollar broke down below both the 200-dma and the bullish trend line.
• This is an important development. If the break holds, which it did NOT previously, this would bode well for commodities, gold, and hedges (not good for stocks.)
• However, while we are picking around the edges, it may be too early for a sharper dollar decline currently. We will wait and watch closely.
• The “sell” signal remains intact currently suggesting the sell-off could have some room to go.