Friday , September 25 2020
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Tag Archives: Free Posts

A market in transition

Mid-week market update:I observed in the past that the market had undergone a regime shift, and most of the gains were occurring overnight, while prices were lagging during daylight hours (see My inner trader returns to the drawing board). This is an indication of a jittery market sensitive to headlines that were released after the market close. In the past, past breaks of the overnight to daylight return ratio marked a change in market direction. As the chart below shows, the overnight to...

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Earnings Monitor: Waiting for Congress

We are starting our coverage of the Q2 earnings season. Let’s begin with the big picture. FactSet reported that, with 9% of the companies reported, the EPS beat rate was 73%, which was slightly above the 5-year average. The sales beat rate was 78%, which was well above the 5-year average of 60%. The bottom-up consensus forward 12-month estimate rose 0.51% last week The market is trading at a forward P/E of 22.3, which is well ahead of historical norms.  A detailed look A detailed...

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Pockets of opportunity in an uncertain 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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Can a bull market begin without the banks?

Earnings season has kicked off with reports from the major banks. The market reaction has been mixed so far. From a big picture perspective, history shows that whenever the relative performance of banking stocks have breached a major support level, such events have usually signaled periods of financial stress and bear markets.  This time, the Covid Crash saw the market fall and recover in the space of a few short months. This begs two important questions for investors. First, the...

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A Covid recovery?

Mid-week market update: The market has taken on a risk-on tone as news of a promising Moderna vaccine trial hit the tape. While the relative performance of healthcare stocks haven’t done much for several weeks, they did catch a recent bid.  As well, cyclical stocks have also perked up as they responded to the hopes of a post-pandemic world.  Is this the start of a COVID recovery? I analyze the issues surrounding vaccine development and provide a framework for evaluation.  The...

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Another equity valuation warning

As Elon Musk passes Warren Buffett in net worth, it is time to sound one more warning about the market’s valuation. FactSet reported that the stock market is trading at a forward 12-month P/E of 22.0, which is well above its 5 and 10 year averages.  Here is why these circumstances are highly unusual.  The historical record The following chart compares the forward P/E ratio to the Misery Index, which is the sum of the unemployment rate and inflation rate. In the past, P/E multiples...

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Risk levels elevated, but no signs of panic

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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Double bubble, double trouble?

When a stock market shifts from a bull to a bear market, leadership usually changes. Bear markets are often periods of catharsis. The old leaders get tired, and they have been bid up to excessive valuations. A reality check sets in and they fall. As the old leaders fail, new market leaders emerge to guide a new bull upward. It is therefore with great interest that we have been monitoring the Big Three leadership themes in the US market, namely US over non-US, growth over value, and large...

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My inner trader returns to the drawing board

Mid-week market update: To paraphrase Emperor Hirohito when he broadcast the Japan’s decision to surrender in World War II to the nation, “My inner trader’s returns have not necessarily developed to his advantage in 2020”. While the trading system was correct in spotting the major downdraft this year and the initial recovery, it was wrong to stay short as the market rallied.  With that in mind, he has gone back to the drawing board and analyzed the three key elements of the current...

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Why there is no V

The market has been getting excited by the prospect of a V-shaped recovery. It points to data such as the ISM Manufacturing PMI, which rose from 43.1 in May to 52.6 in June, indicating expansion. The employment index improved from 32.1 to 42.1, and the new orders index increased from 31.8 to 56.4..  While those are positive developments, this is not indicative of a V-shaped rebound. PMIs are designed to measure month-to-month changes. The economy is still in a big hole it’s trying to...

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