DL Miley Picks for 2020

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I struggled to find 5 top picks for 2020, I was only able to come up with 2:

 

  1.  DR Horton (DHI).  I think this homebuilder, currently at about $53, will reach $86 by year end.  With low rates and a booming economy this is my top pick.  EPS growth over the last 5 years was about 24% and return on equity is about 17%, current P/E is only 12, so I think this stock is undervalued.
  2. LCI Industries (LCII).  This auto component supplier, currently at about $108, is undervalued and could reach about $164 by year end.  It also sports a dividend yield of about 2.4% as a bonus.  EPS growth over the last 5 years was about 23% and return on equity is 18%.  The P/E is a bit high at about 20, but expected EPS growth is 20% so I still think that this stock is undervalued.

For a speculative pick, I still like ROKU, as it is not tied to single streaming supplier – it supports Disney+, Hulu, Netflix, just about every streamer out there.  And they have their own ad-supported Roku Channel.  As I said on traditional value metrics I would not pick them but I bought a small amount of shares back in 2018 at about $47, and the stock is now about $148!  I still think that this stock has room to grow.   read more

Updated Technical Model with Unusual Signal

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I have not posted in some time but have been refining the technical model.  It has been subject to about 25 version updates, and I am preparing for a call on what will likely be a material up or down movement in the market.  There is a history of such a thing when the market trades for some time in a narrow range, as it has since July.

In any event, note the technical trend for Largecap, Midcap, Smallcap, Microcap, Longbond, Gold, and Real Estate in the box below.  They are all BUY in all periods.  That is (historically) unusual, and counter to long term correlation — as you can see by the Correl (correlation) column, these asset groups are not highly correlated yet they are all BUY in the model and generally have all been trending upwards due to the worldwide search for yield.

All of this to the point that it is about time to begin to fly the plane using Instrument Flight Rules instead of Visual Flight Rules, as it is going to start getting stormy.  Data typically reverts to its mean, and in this case, at some point, these relationships are going to begin to diverge back to historic patterns.

I have been preparing for such a thing in the model and will be issuing updates appropriately.  If you have a particular security that you’d like a snapshot on let me know.

Mark

OTM Investing Update – well, it depends on your timeline….

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On an hourly basis, the technical model would have had you buy the S&P at 1967 on March 1.  The S&P closed at 2072 on April 1.  So were we to play that game, investing using hourly data, then we would be long the market.

Based on daily closing data however we continue to be out of the market, selling at 1970 and yes being out during the last run-up, as well as out during the interim drops to as low as 1850.  This model is designed to be intermediate term, and it is biased against large draw downs.  So the trend will have to fully reestablish before it will bring you back into this market.  Historically it has a 78% win percentage and I believe that over time it will be useful.

The long bonds had a buy signal at 123 and are presently at 130.  There is near term volatility with every word out of the Fed, but for the moment it still makes sense to hold bonds for their relative predictability.

I have begun to experiment with adding market wide breadth and other indicators to the model including Bullish Percentage, which in one flavor is the percentage of S&P stocks that are bullish based on Point and Figure charting.  I expect that this should further improve the intermediate and long term results.

04022016 TLT daily 04022016 GSPC daily 04022016 GSPC hourly

OTM Market Update – Inspection

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The best way to understand the market is to look at it in various timeframes.

Below is a picture of the S&P since 1982.  The shaded areas are official “recessionary” periods.  At a weekly level the technical model is saying Sell in all periods.  So we start with the overarching long term trend as downward.

02282016 GSPC W

 

 

 

 

 

 

A Daily view of the S&P also reveals weakness.  The technical model is Sell in the Intermediate and Long term, consistent with the broader Weekly view.  Note that the S&P is a BUY in the short term view.

02282016 GSPC D

 

 

 

 

 

 

An Hourly view of the S&P reveals short term emerging strength.  The technical model is SELL in the hourly long term and intermediate term, but BUY in the near term hourly period.

02282016 GSPC H

I believe what we are seeing is a short-term upward movement in the market but in the context of a broader, long term downward market.

Turning attention to Bonds, the TLT ETF (Long Term Bonds) have been strong.  On a weekly basis going back to 2010 the technical model is BUY in short and medium terms particularly in the past 18 months.

02282016 TLT W

 

 

 

 

 

 

A Daily view of TLT reveals recent strength.  It is now BUY in all periods.  In some respects this is a confirmation of investor anxiety reflected in the high VIX and continuing concern about the market in general.  It is also a reflection of the belief that the Fed has no room to further raise rates with an economy that is weaker than the Administration is advertising.

02282016 TLT D

 

 

 

 

 

 

An Hourly view of TLT confirms the above.  TLT has been a BUY on the hourly chart since late January.

02282016 TLT H

 

 

 

 

 

 

We are watching DOG, the inverse ETF, for an investing opportunity.  There was an opportunity for investing back in mid-December, but the opportunity expired with a profit at the end of January.  I will continue to keep you posted on the opportunity.
02282016 DOG H

 

 

 

 

 

 

Overall, the recommendation for intermediate term investors (not short term traders) is an 80% fixed income / 20% market equity allocation as we protect principal and wait for a trend in this market.