Monday, February 19, 2018

This Week's Message: General Conditions Update -- And -- Timeless Insight

Our job, as we see it, as portfolio managers is to make sure that each client's portfolio is properly aligned with present general conditions. Our job, as we see it, as portfolio counselors is to make sure that each client's portfolio is aligned with his or her personality. 

Frankly, the latter is every bit as critical as the former, and in many ways it's the more challenging of the two!

As for us as portfolio managers: We just completed this week's technical analysis and updated our macro index. Here are the highlights:

The S&P 500, along with the financials, technology, industrials, consumer discretionary and health care sectors -- after moving below their respective 50-day moving averages week before last -- finished last week back above that short-term trend indicator.
Our long-term trend indicator has moved to neutral, from bullish, for energy and consumer staples, and remains decidedly bearish for U.S. telecom, utilities, REITS and bonds. The remaining sectors -- as well as the major averages -- continue to read very bullish! 
Market breadth improved measureably from the prior week for the S&P 500 as well as every major sector, save for energy and utilities. 
Additional chart analysis, which folds in several other factors such as volume and support/resistance levels, paints an exceptionally bullish picture for financials, industrials, health care and global telecom in particular. While energy, utilities, and bonds look rather dismal.
The PWA Macro Index rose 4.13 points to +73.75. That's a strong reading!
After spending a week with a forward price to earnings ratio at a 16 handle, the S&P 500's value metric has moved back to 17.5; while that's higher than the historical average, it's far from lofty in our view.
As for U.S. sectors; financials, biotech, telecom and home builders are historically cheap. Virtually every other sector, save for REITs, looks reasonably priced to us given current conditions. Foreign markets, save for India, South Africa and Indonesia look even better (cheaper) across the board.

As for us as portfolio counselors: Well, like I said, that one can be a real challenge. The ultimate goal is to maintain equity market exposure in the amount that allows our clients to maintain their sleep habits regardless of market conditions. Of course communication is key!

If you've been a regular reader you know that we have been very constructive on stocks for quite a long time, and we remain so today. Nevertheless, amid the most bullish signals emanating from the volumes of research we perform week in and week out, we still experience periods that run entirely counter to the narrative we present herein -- always have, always will -- recent volatility a case in point.  Oh, and make no mistake, during future bear market conditions there'll be counter-trend, bullish-seeming rallies that won't have us biting either. 

We fully recognize that it's those counter-trend moves that can really get under an investor's skin!

With that in mind, let's once again heed the immortal words of history's great trader, Jesse Livermore:

"It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance. 
The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. 
The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks."
The market is little more than a reflection of human nature. Which makes century-old insights such as these timeless...

I'll be away from the office beginning tomorrow (2/20) afternoon, be back Tuesday the 27th.

Have a great week!

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