Market Opinion

• The S&P large cap index lost 3.5% last week, rising to 2002.33.
• The Russell 2000 small cap index lost 2.5% last week to 1152.45.
• Long Bonds (TLT) gained 4.3% last week to 126.30.
• Asset Allocation Model: unchanged. 52% Stocks, 27% Bonds, 20% Optional.

The S&P fell last week but did not violate the trailing chandelier stop.  It pays to be diversified — Long Bonds rose 4.3% last week.  For the long term investor, the Weekly S&P should give you some perspective.  This past week’s adjustment was due, and does not in and of itself constitute a reverse in the trend.  The technical models remain positive. read more

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• The S&P large cap index gained 0.4% last week, rising to 2075.37.
• The Russell 2000 small cap index rose 0.8% last week to 1182.43.
• Long Bonds (TLT) lost 1.1% last week to 121.09.
• Asset Allocation Model: unchanged. 52% Stocks, 27% Bonds, 20% Optional.

As has been true the past four weeks, the S&P technical model says BUY in all periods.  The month of December is also traditionally a good month for the market.

The broad market indexes, as well as long term bonds, are BUY in the technical model.  A 4% correction in the S&P would not presently violate any trend lines, so don’t be surprised (and don’t panic) if you see a bit of volatility and some profit taking before the end of December. read more

• The S&P gained 0.2% last week, rising to 2067.56.
• The Russell 2000 rose 0.1% last week to 1173.23.
• Long Bonds (TLT) rose 2.0% last week to 122.49.
• Asset Allocation Model: unchanged. 52% Stocks, 27% Bonds, 20% Optional.

As has been true the past three weeks, the S&P technical model says BUY in all periods.  The small cap Russell 2000 has now flashed BUY.  Overall market performance across the board is “in gear” with a rising market.  The Asset Allocation model remains bullish, with stock allocation at 52%.  As the charts below indicate, now is generally a good time to enter the market with wise buys. read more

• The S&P gained 1.2% last week, rising to 2063.50.
• The Russell 2000 lost 0.1% last week, falling to 1172.42.
• Long Bonds (TLT) rose 0.5% last week, rising to 120.10.
• Asset Allocation Model:  52% Stocks, 27% Bonds, 20% Optional.

As has been true the past two weeks, the S&P technical model says BUY in all periods.  The small cap Russell 2000 has now flashed BUY.  Overall market performance across the board is “in gear” with a rising market.  The Asset Allocation model is slightly even more bullish, with stock allocation rising to 52%.  As the charts below indicate, now is generally a good time to enter the market with wise buys. read more

• The S&P gained 0.9% last week, rising to 2031.21.
• The Russell 2000 lost 0.2% last week, falling to 1171.86.
• Long Bonds (TLT) fell 0.7% last week, falling to 118.39.
• Asset Allocation Model:  50% stocks, 30% Bonds, 20% Optional.

At this time the technical models for the S&P, Russell 2000, and Long Bonds are all BUY.  The Asset Allocation model has recovered back to 50% stocks.  The underlying market strength that has propelled the S&P 500 all year long has driven the market back above all of the long term trend lines dating back to the beginning of the rally in 2009. I discussed as recently as last week the breakdown in small stocks, and the divergences between the major market index and what was happening to underlying stocks.  This has been a familiar story for much of 2014, so too is this advice:  follow the quantitative models, which have been correctly positive on the market as well as long term bonds for quite some time now.  The November-December period is traditionally a strong period for the market, which no doubt is fueling some investor confidence. I don’t like the underlying divergences, but as the indexes are going up and the models say BUY, who am I to argue? read more

The S&P went up 2.7% last week, including a 1.2% jump on Friday.  It has reclaimed all that it lost in recent weeks, and is now at an all time high. Yet, despite the talk of analysts and others, I am not convinced that this trend will continue.  Let me lay out a few facts that have nothing to do with Bank of Japan actions or Fed actions, but do have everything to do with a lot of other people’s actions. Fact 1: The cumulative number of Advancing versus Declining NASDAQ stocks is negatively diverging versus the S&P.  The chart below subtracts the number of stocks going down in a day from those going up in a day.  If the trend is down in the BLUE line below, more stocks are dropping than going up.  Over the past few months, even though the S&P has generally been rising, more individual NASDAQ (smaller) stocks are falling than going up.  Signs that smaller stocks are having trouble.   Fact 2: If you subtract stocks hitting a new 52 week low, from stocks hitting a new 52 week high, you get the GREEN line below.  Again you can see that more NASDAQ stocks are hitting new lows than hitting new highs.  Yet the S&P continues to trend up.  This again is a sign of broad weakness in smaller stocks   Over the course of the past several weeks I have mentioned that small stocks lead large stocks.  So again we look at the Russell 2000 for guidance.  It is conflicting guidance.  Yes the technical model for the Russell 2000 is all BUY, but until it clears that upper RED resistance line I will not be convinced. The S&P 500 technical graph below is BUY for all timeframes.  As with the Russell 2000 technical model, all seems “GO”.   Summary It appears to me that headline-producing actions by various governments have driven investment in large, prominent stocks such as those in the S&P 500.  But there is definite weakness in the rest of the market.  The mechanical models say “BUY” but like the market in general they are being materially influenced by governmental activities. Be careful in your asset allocation and do not assume that it is time to be aggressive with stocks.  The asset allocation model (https://onthemarkinvesting.com/otm-asset-allocation/) only assumes 35% stock allocation at this time, versus 50% bonds.  Given the risk in the market as a whole, that seems appropriate to this observer. read more

Despite the market uptick in the last few days, the asset allocation model (https://onthemarkinvesting.com/otm-asset-allocation/) still strongly  favors bonds over stocks.  It is predetermined to err on the side of protecting assets against substantial market drops.  You can expect it to slowly rationalize to a new steady state value as the weeks go by. This rebound in the market is not completely convincing, yet.  Technically the pierced long term trend lines have not been collectively passed on the upside for at least 3 days or by 3%.  The model itself continues to register “BUY” in the long term, but not yet in the intermediate or short term.  As a longer term investor, you may need to see some stability and direction in the market before you put many of your cards back on the table.  Or at least a “BUY” signal in the intermediate term S&P. Another point of reference is the Russell 2000.  The index has still not recovered (see below) from the most recent drop, and still does not register BUY on either the intermediate term or long term.  Remember that the Russell typically leads the S&P.  It is leading it up in the short term, but the strength does not appear yet to rebound back to previous levels. It is a fact that long term bonds are still favored by the market and by the technical model (see below).  This despite poor bond returns, fear of eventual inflation, and a VIX (fear index) gauge that at 16 is now back below the historical average of 20.   Between earnings season, general elections, and Ebola we have enough triggers to move the market around.  This is a time of short term “static” and financial news chatter.  If you are a longer term investor, stay away  from the headlines and watch the numbers.  Make sure your assets are allocated between the asset classes (stocks, bonds, real estate, …) in a way that you are comfortable with.  If this is a “traditional” 4Q then stocks will be strong, the trends will continue past broken lines, and we will resume the bull market.  But until then, stay alert. read more

The S&P 500 has “corrected” 6.6% since its high on September 19.  So what is next, and what to do about it?  Here is a suggested order of analysis: 1)  First, asset allocation.  The asset allocation model presently recommends a split of 59% Bonds / 28% Stocks / 13% Optional.  Traditionally these splits don’t move too much week to week.  In fact I would check them a) weekly only, and b) just move monies to stay in sync if I was out of whack more than 5% (500 basis points).  You can see from the chart below that this “inversion” of the stock/bond percent spread has happened several times in the past few years. 2) Secondly, note that the S&P is still a long term BUY in the technical model.  It is however not a BUY in the intermediate or short term ranges.  The 4Q of the year is traditionally a good time for the market, and I would not be surprised to see another upward move.  But…..on technical grounds (and you can see this in the charts below as well), two very long and important support trend lines have been violated.  There is speculation that this violation is part of the reason for the drop and the volatility.  Trend lines tend to become resistance when they are violated, so….my working hypothesis is that we are not going to see a big uptick in the market in the near term.  In fact we may not be done in the current correction cycle. 3) On October 5 I mentioned that small-cap stocks often “lead the charge”.  The Russell 2000 has not begun to recover.  In fact it went down again on Friday. So…I would advise to get your target asset allocation where you want it — always.  But as the numbers above indicate, you may want to hedge this market a bit.  If the S&P reverses course and rises again, you can join the fun later.  But it is as likely that we are not done yet on the downside. read more