Thursday , November 26 2020
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Tag Archives: Free Posts

We’re expecting riots…

Mid-week market update: There is an adage that when dentists start to buy, you should be selling. I came upon a tweet by a resident in Los Angeles with a dentist in the Santa Monica area. The dental office is expecting riots next week, regardless of who wins the election.  FBI firearm background checks are surging. Anecdotally, both sides are arming themselves in preparation for civil unrest.  Is this peak fear? It is time to buy the panic?  Peak fear? Notwithstanding this...

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The momentum vs. seasonality dilemma

I have some good news and bad news. The good news is the option market isn’t as concerned about the prospect of a contested election. The chart below shows the history of the term structure of at-the-money implied volatility (IV). The latest readings shows that IV spikes just after Election Day, and deflates slowly afterward. The bad news is it took a -1.9% decline in the S&P 500 to invert the term structure to create this condition.  We can see a similar result from the IV of...

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How the Election held the market hostage

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.  The Trend Asset Allocation Model is an asset allocation model which applies trend following principles based on the inputs of global stock and...

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Buy the cyclical and reflation trade?

The global economy seems to be setting up for a strong recovery. We are seeing a combination of easy monetary policy, slimmed-down supply chains, and a rebound in consumer confidence.  The cyclical and reflation trade is becoming the consensus view. However, there may still be time to board that train. Futures positioning in the reflation trade is rising, but levels are not excessive.  What are the bull and bear cases?  The bull case The bull case is relatively easy to make. The...

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The NASDAQ tail wagging the market dog

Mid-week market update: One of the key indicators I have been monitoring for the health of the market is the NASDAQ 100 (NDX), which is a proxy for large-cap technology stocks. So far, the NDX has been testing an important rising relative uptrend.  If the relative uptrend were to decisively break down, it would spell trouble for the overall market.  Large-cap tech dominance The analysis of the top five sectors in the S&P 500 tells us about the importance of large-cap growth...

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Does the economy even need more stimulus?

House Speaker Nancy Pelosi has set a Tuesday deadline for an agreement for a coronavirus stimulus package before the election. Recent data begs the question of whether more stimulus is even needed.  Last Friday’s retail sales print was astonishingly strong and beat market expectations. While retail sales statistics are notoriously noisy, September retail sales rose sequentially in all major categories.  In addition, consumer confidence improved in early October despite the expiry of...

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How the US is becoming an emerging market

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.  The Trend Asset Allocation Model is an asset allocation model which applies trend following principles based on the inputs of global stock and...

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How to trade the election

With the US election just over two weeks away, it’s time to look past the election and focus on how the economy and markets are likely to behave. Barry Ritholz correctly advised investors in a recent post to check their political beliefs at the door when analyzing markets. Stock prices have done slightly better under Democratic administrations, but the effect is mostly noise in light of the small sample size.  With that in mind, let’s consider the differences in market environment if...

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Trading the breadth thrust

Mid-week market update:  I discovered an error in my last publication (see A Momentum Renaissance). The market did not achieve a Zweig Breadth Thrust buy signal last Thursday as I previously indicated, though it was very close. As a reminder, the Zweig Breadth Thrust buy signal is triggered when the ZBT Indicator moves from an oversold to overbought reading within 10 trading days. In my previous publication, I misinterpreted the first day of the window as September 25, it was actually...

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A Momentum Renaissance?

Preface: Explaining our market timing modelsWe maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend Asset Allocation Model is an asset allocation model which applies trend following principles based on the inputs of global stock and...

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