Conservative. Smart. Investing.
Mark Bates For some time now the technical model has advocated being 75% in cash/bonds and a max of 25% in market-correlated equities. Just a review:
August 27: S&P at 1987. Allocation recommended at 75% bond / 25% equity.
There hasn’t been much to discuss for the longer term investor since my last (September 9) note. While the overall market has risen, it is a weak market rise. You can see it in the technical data below.
The technical S&P model is running 3.2% better than the real S&P in the past 12 months, beating it in the one, two and three year periods. Current suggested equity allocation is at 5.25% with a 72.5% suggested Bond allocation.
The technical model is now 2.3% ahead of the market over the past 12 months, and ahead of the market at the 2 and 3 year periods as well. Recommended Equity allocation is around 8%.
The inverse S&P 500 ETF (DOG) is approaching a BUY point, as it is BUY in short and intermediate periods but not in the long period, at least yet. If you care to try to profit on market weakness you can use an inverse ETF. I will wait until I get a long term signal before buying.
The S&P 500 went up today but the OTM technical model is simply at a short term BUY but medium and long term SELL — overall, still out of the market. Separately the asset model is recommending a 10% equity allocation.
The technical model remains unchanged at SELL for the S&P 500. Recommended stock percentage has dropped to 12%.
Five straight down days in a row. My personal action is as I said yesterday. Being diversified, patient and a long term investor I am waiting for the VIX and the market to settle down a bit to see what I want to do.
Lets start with the facts….the technical model has flashed a SELL sign for the long term S&P holder (the first since 2011) and the asset model has equities target at 13% of total holdings. So both separate technical models are advocating taking a cash-centric, conservative position.
I was just reading today where the past six months has been one of the calmest times in the history of the market relative to daily volatility. So when the S&P drops 5.8% in a week it magnifies the loss, whereas in a normal run of things this kind of volatility would not be so uncommon.
Yes the market dropped today but you have to look at it in the grand scheme. Below are graphs going back to 2005. Technically the S&P will need some more confirming sideways or downward action to be material to an intermediate or long term investor. Additionally the asset allocation has shifted slightly (200 basis points) away from equities but not decidedly.
The asset/bond ratios of 52%/27% has not changed, but the market is in a consolidation, sideways phase. Now would not be the time to put a lot of new money in this market. Small caps continue bruised, midcaps a bit less so, and large caps largely sideways. This is the beginning of a classic breakdown but it has not proceeded much further in the past few weeks.