OTM Market Analysis – Are you a Long Term Investor?

Prior Week Market Performance:

  • The S&P large caps lost 1.6% last week to 2071.26.
  • The Russell 2000 small caps lost 1.3% last week to 1217.52.
  • Long Bonds (TLT) lost 4.7% last week to 123.50.
  • Asset Allocation Model: unchanged.  Stocks (52.5%); Bonds (27.5%); Discretionary (20%)

 Last Week’s Commentary:  Same as the week before.  The correlation between SPY and TLT (S&P to Long Bonds) is 0.28, implying little correlation at all.  As long as Yellen and the Fed are going to be cautious about raising rates, TLT and its 2.4% dividend yield is not a bad bet to offset the riskiness of the equity portfolio.  That being said, we are nearing the point where we’ll start to shift the bond position from long to short.  That point is coming

Current Technical Model Indicators (Short, Med, Long periods):

  • Large Cap S&P 500 – BUY, BUY, BUY
  • Mid  Caps – BUY, BUY, BUY
  • Small Caps – BUY, BUY, BUY
  • Micro Caps – BUY, BUY, BUY
  • Long Bonds – SELL, BUY, BUY

 This Week’s Commentary:  Ask yourself a question — are you a long term investor or aren’t you?  That is the question as we look at the past week, and the technical models.

The S&P 500 is dead center in the middle of a broadening pattern, and likely to hit some support at where it is right now.  Implying that it may go up or down but unlikely to drop or gain more than 2.2% in the week, biased to the upside given the support (see chart below).

Long term bonds took a tumble last week due to stronger than expected economic news.  But they have to fall 2% more to cross a 15 month support line.  Since October there have been two periods of meteoric, unsustainable rise.  So this downward adjustment is not crazy.  And probably overblown – 13 of the past 18 days have been down days.

If you have been in this market a while, following the asset allocation guidelines in this blog, you are nicely profitable.  Your long bond basis is 105 (versus the current 123) and your S&P basis is 1314, versus the current 2071.

The Asset Allocation model remains unchanged for long term investors.  IF we were to get further deterioration then it would be time to take a different tack.  We get closer to a shift from long bonds, but not yet.  Not yet.  Be patient.

03072015 asset alloc 03072015 TLT 03072015 GSPC

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