A “Magical” Strategy for DIS

OK, for the record, I have stood in enough long lines next to impossibly sweaty people (Full Disclosure: They likely feel the same way about me) to know that all of the talk of “Disney” and “Magic” is strictly for marketing consumption.  That being said – and despite the fact that you cannot attend the flagship property in sunny CA, and likely will not be able to for some time – there is something about “going to Disney” that still strikes a chord with a whole lot of people. 

Of course, my interest here is more financial in nature. 

Now the “rational” thing to do in the minds of most investors is to ask and answer some serious questions regarding “theme park attendance.” in the age of COVID-19.  Questions like “will attendance pick up anytime soon” and “will DIS continue to be an economic powerhouse if attendance does not return to pre-Covid levels?”

Here is a link to a factual, well-researched and well-written article noting that Disney World attendance as of 8/21/20, attendance was down 80% from a year earlier.  Scary stuff, right?  And the snap implication is fairly obvious – theme parks are suffering and may continue to do so for the foreseeable future.

But as I mentioned, my interest is more financial in nature.  And I tend to look at things from a slightly different angle than a lot of other people.  Part of that is because I have come to recognize that (like a lot of other people, but sadly unbeknownst to a lot of those same people) I (and they) am not very good at accurately answering “questions about the future”, such as those posed above about theme parks. 

I read that theme park attendance is “down 80%” and instantly that voice in my head loudly issues that age-old “DANGER! WARNING WILL ROBINSON” alert and I feel the urge to scurry off in the other direction.  But fortunately, I have gotten pretty good at not overreacting to that initial warning and coming back for a second glance.

Consider Figure 1.  The date marked by the vertical line is August 21, 2020, i.e., the day that the news came out that “Disney World attendance is down 80%, that heavy discounting going on, that Disney stock is down for the year and that it is lagging the major stock indexes.” 

Figure 1 – Disney stock (Courtesy AIQ TradingExpert)

Since that “DANGER! WARNING WILL ROBNINSON” moment, DIS is up +34% in 4 months, versus +9% for the S&P 500 Index (FYI, DIS is now up 18% for 2020 vs. 14%+ for the S&P 500).

Are the financial markets a perverse beast, or WHAT!?

The “Real Magic” of Disney Stock

So, what the heck happened to make DIS stock burst higher even in the face of seemingly very bad fundamental news?  Well, long story short, October 1st happened.  Wait, what?  October 1st?  Surely it can’t be that simple!?

Here’s the thing: it probably should not be that simple.  And there is absolutely no guarantee that it will continue to be that simple.  But for the past roughly 6 decades…. it has been just about that simple.  Consider Figure 2.

Figure 2 displays the cumulative % gain for DIS stock held ONLY from October 1st each year through the end of May the following year, every year since 1962.

Figure 2 – DIS % +(-) during October through May (logarithmic scale)

An initial $1,000 investment in DIS stock held only October through May starting in 1962 is worth $108,512,237 as of 12/18/2020, or a gain of +10,851,124%.

Figure 3 displays the cumulative % gain for DIS stock held ONLY from June 1st each year through the end of September that same year, every year since 1962.

Figure 3 – DIS % +(-) during June through September (non-logarithmic scale)

An initial $1,000 investment in DIS stock held only June through September starting in 1962 is worth $44.86 as of 12/18/2020, or a loss of -95.5%.

The Upshot

Many investors will ask the obvious question of “Why does this work?”  And the most succinct answer I can proffer is “It beats me.”  Obviously, many investors will not be satisfied with that answer.  And that is perfectly OK by me.  As a proud graduate of “The School of Whatever Works” I tend to value “consistency” more than I do cause and effect.  Not everyone is wired that way and that’s OK. 

Speaking of consistency, for what it is worth Figure 4 displays decade-by-decade results for the Oct-May period versus the Jun-Sep period. 

Figure 4 – DIS decade-by-decade

The key things to note are that:

*The Oct-May period showed a pretty substantial gain during each of the 6 previous decades. 

*The Jun-Sep period showed a gain during the 60’s but lost money in every subsequent decade

(Note 2020 results through 12/18 are included in the table but are not a part of the commentary above).

Summary

Clearly the Oct-May period has been pretty “magical” for DIS stock investors for a long time.  Will this continue to be the case in the future?  Ah, there’s the rub.  And as always, I must repeat once again my stock answer of “It beat’s me.”

But the real point is that in the long run investment success has a lot to do with finding and “edge” and exploiting it repeatedly.  Or as I like to say:

“Opportunity is where you find it.”

See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine

See also Jay’s “A Strategy You Probably Haven’t Considered” Video

See also Video – The Long-Term…Now More Important Than Ever

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented represents the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

The Bartometer

December 12, 2020

Hello Everyone,

Over the last month the stock and bond markets have increased again. November has been one of the best months for all of the indexes not just the technology sector. The small and midcap stocks started to pick up steam last month, rising over 10% as compared to the 2 to 4% on the Dow, S&P and NASDAQ. I continue to like the small and midcap funds as well as the value sector especially as the vaccine application gets even closer. We are still in a seasonally strong time for the market, but the senate elections in January may cause volatility depending on the results. My computer models are still on a Buy-Hold signal but can change at anytime.

One year from now I expect the economy to be better than it is currently with the vaccine now being administered by Pfizer and other companies. This should benefit the hard hit restaurants, airlines, parks, and more. If you are within 1 to 3 years of your retirement I would rebalance your portfolio, as the markets have done well and are about 10% overvalued. If you haven’t had a strategy meeting with me in the last 6 months please call me to set a time to go over all of your holdings holistically, including your 401(k) and more.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until December 12, 2020. These are passive indexes.

YTD
Dow Jones +7.8%
S&P 500 +15.%
EQUAL WEIGHTED S&P 500 +10.7%
NASDAQ Aggressive growth +31%
Large Cap Value +3.0%
I Shares Russell 2000 ETF (IWM) Small cap +16%
Midcap stock funds +10%
International Index (MSCI – EAFE ex USA +6%
Financial stocks -5%
Energy stocks -28%
Healthcare Stocks +11%

Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration +9.8%
High Yield Merrill Lynch High Yield Index +3.%

Floating Rate Bond Funds +1.2%
Short Term Bond +3.2%
Mutli sector bond funds +4.17%

Classicalprinicples.com and Robert Genetskis Excerpts

Market Outlook

The bull market in stocks continues. All five of the indexes are now at or within 1% of all-time highs. Small cap ETFs (!WM, IJR) were up close to 4%, the QQQ’s were up 3%, while the Nasdaq, S&P500 and Dow were flat to only slightly higher. The news for the week was mostly positive. While most are focusing on FDA’s approval of Pfizer’s vaccine, something even better may be coming along (See the Covid update on bottom of page.) The S&P500 remains 10% overvalued and most psychological indicators point to excessive bullishness. It would not be unusual for stocks to pull back from these levels. Even so, technical indicators remain positive. In addition, the tailwind from the Fed buying close to $100 billion a month suggests the bull market can continue. I remain comfortable with a recommended exposure of 90% equities and 10% cash in a standard portfolio. Individual exposure to stocks depends on individual characteristics.

A Look Back

Weekly initial unemployment claims increased to 853,000 in the first week of December. The 4- week average also increased to 776,000, up from 746,000 in November. The number of workers receiving insured unemployment payments increased 300,000 to 5.8 million, but down from 7 million a month ago. The insured unemployment rate was 3.9 million down from 5.0 million a month ago. Inflation data continue to be distorted by the volatile shift from lockdown to recovery. In the 6 months ending in November consumer prices were up at roughly a high 3½% annual rate. However, year-over-year consumer inflation remains a modest 1½%.

Stock Valuation: S&P 500 10% Overvalued
Economic Fundamentals: Positive
Monetary Policy; Highly Expansive

Good News amid Rising Covid Cases

As Covid deaths are recording new daily records, there is a heightened level of fear over the trend. There is also concern the rise in new cases and deaths will slow the economic recovery. In spite of complaints about a person without a medical degree passing along information on Covid treatments, I will continue to inform you about what I believe is credible information. You should be able to evaluate and decide for yourself if such information could be useful to you and your family and friends. Three days ago, Dr. Pierre Kory, head of an international association of doctors specializing in treating Covid patients, testified before Congress. His group of doctors claims they now have a protocol that provides the most effective means of both preventing and treating Covid. Dr. Kory says no one needs to be infected or die from Covid any longer. The protocol uses Ivermectin Oral, a widely used medicine for treating parasites. Dr. Kory’s group says it is safe and inexpensive.

Source: Classical Principles.com

The S&P 500 is above. As you can see, the November to December time period went up nicely, but over the last few days the market has become tired and unless we get a stimulus package that will excite the market, we may see a pullback to the 3551 to the 3604 level. If that level breaks decisively then there is no real support until it gets to 3357 or the 200 day moving average. I don’t see more volatility than that as we are currently on a Buy-Hold in this market.

The first indicator is the MACD or the Moving Average Covergence Divergence indicator. The Buys and Sells are given when the indicators cross. This daily indicator is more for shorter term trades. On the weekly chart the MACD is still positive.

The SK-SD Stochastics indicator. I use this indictor to determine when the market is overbought or oversold. When the markets are dramatically over bought, OVER 88, you might want to reduce equities some what and when it’s under 40 you may want to accumulate equities. It is above 88 and crossed on the downside, so be a little careful short term.

The Stochastics indicator. The Buys are given when the indicator goes below 20 and then rises above 20 and the Sells are given when the indicator drops below 80 and it just did. Even though the LONG TERM signals are still positive, the Short term may be a little volatile. If the US Governement has another stimulus program the market can again rise.

Support levels

S&P 500 area are 3636, 3550, 3357 and 3209.
NASDAQ Support, 12075, 11970, 11749 and 11369.
Dow Jones 29970, 29564, 28837, 28474, and 26146
These may be safer areas to get into the equity markets on support levels slowly on the accumulation areas.

THE BOTTOM LINE:

The market has continued nicely over the last month mainly because of earnings of companies beating expectations and a recognition that the economy will eventually return to a growth pattern. The market looks to continue to grow and as the economy comes out of its recession, the small and midcap stocks as well as the large stocks should continue to do well over the next few years. The NASDAQ has done the best this year and should continue to do well IF the market continues higher. Now that the vaccine is a reality the value stocks should start to rise. I like the international stocks as well. Diversification is now important as the first 5 months of the recovery has been all large growth.

Joe Bartosiewicz, CFP®
92 High Street
Thomaston, CT 06787
860-940-7020

Securities and advisory services offered through SagePoint Financial, Inc. (SPF), member FINRA/SIPC. SPF is separately owned and other entities and/or marketing names, products or services referenced here are independent of SPF. 800-552-3319 20 East Thomas Road Ste 2000 Phoenix AZ 85012

Technical Analysis is based on a study of historical price movements and past trend patterns. There is no assurance that these market changes or trends can or will be duplicated shortly. It logically follows that historical precedent does not guarantee future results. Conclusions expressed in the Technical Analysis section are personal opinions: and may not be construed as recommendations to buy or sell anything.

Disclaimer: The views expressed are not necessarily the view of Sage Point Financial, Inc. and should not be interpreted directly or indirectly as an offer to buy or sell any securities mentioned herein. Securities and Advisory services offered through Sage Point Financial Inc., Member FINRA/SIPC, an SEC-registered investment advisor.

Past performance cannot guarantee future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented in this letter should only be relied upon when coordinated with individual professional advice. *There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.
It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.

The price of commodities is subject to substantial price fluctuations of short periods and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated, and concentrated investing may lead to Sector investing may involve a greater degree of risk than investments with broader diversification.
Indexes cannot be invested indirectly, are unmanaged, and do not incur management fees, costs, and expenses.
Dow Jones Industrial Average: A weighted price average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
S&P 500: The S&P 500 is an unmanaged indexed comprised of 500 widely held securities considered to be representative of the stock market in general.
NASDAQ: the NASDAQ Composite Index is an unmanaged, market-weighted index of all over the counter common stocks traded on the National Association of Securities Dealers Automated Quotation System
(IWM) I Shares Russell 2000 ETF: Which tracks the Russell 2000 index: which measures the performance of the small capitalization sector of the U.S. equity market.
A Moderate Mutual Fund risk mutual has approximately 50-70% of its portfolio in different equities, from growth, income stocks, international and emerging markets stocks to 30-50% of its portfolio in different categories of bonds and cash. It seeks capital appreciation with a low to moderate level of current income.
The Merrill Lynch High Yield Master Index: A broad-based measure of the performance of non-investment grade US Bonds
MSCI EAFE: the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia, and Far East Index) is a widely recognized benchmark of non-US markets. It is an unmanaged index composed of a sample of companies’ representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends.
Investment grade bond index: The S&P 500 Investment-grade corporate bond index, a sub-index of the S&P 500 Bond Index, seeks to measure the performance of the US corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Bond index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap US equities.
Floating Rate Bond Index is a rule-based, market-value weighted index engineered to measure the performance and characteristics of floating-rate coupon U.S. Treasuries, which have a maturity greater than 12 months.


Keeping a Wary Eye on the “Scary Stuff”

In many ways the markets imitate life.  For example, the trend is your friend.  You may enjoy your friendship with the trend for an indefinite length of time.  But the moment you ignore it – or just simply take it for granted that this friendship is permanent, with no additional effort required on your part – that’s when the trouble starts.

For the stock market right now, the bullish trend is our friend.  Figure 1 displays the 4 major indexes all above their respective – and rising – long-term moving averages.  This is essentially the definition of a “bull market.” 

Figure 1 – 4 Major Indexes in Bullish Trends (Courtesy AIQ TradingExpert)

In addition, a number of indicators that I follow have given bullish signals in the last 1 to 8 months.  These often remain bullish for up to a year.  So, for the record, with my trusted trend-following, oversold/thrust and seasonal indicators mostly all bullish I really have no choice but to be in the bullish camp.

Not that I am complaining mind you.  But like everyone else, I try to keep my eyes open for potential signs of trouble.  And of course, there are always some.  One of the keys to long-term success in the stock market is determining when is the proper time to actually pay attention to the “scary stuff.”  Because scary stuff can be way early or in other cases can turn out to be not that scary at all when you look a little closer. 

So, let’s take a closer look at some of the scary stuff.

Valuations

Figure 2 displays an aggregate model of four separate measures of valuation.  The intent is to gain some perspective as to whether stocks are overvalued, undervalued or somewhere in between.

Figure 2 – Stock Market valuation at 2nd highest level ever (Courtesy: www.advisorperspectives.com)

Clearly the stock market is “overvalued” if looked at from a historical perspective.  The only two higher readings preceded the tops in 1929 (the Dow subsequently lost -89% of its value during the Great Depression) and 2000 (the Nasdaq 100 subsequently lost -83% of its value). 

Does this one matter?  Absolutely.  But here is what you need to know:

*Valuation IS NOT a timing indicator.  Since breaking out to a new high in 1995 the stock market has spent most of the past 25 years in “overvalued” territory.  During this time the Dow Industrials have increased 700%.  So, the proper response at the first sign of overvaluation should NOT be “SELL.”

*However, ultimately valuation DOES matter. 

Which leads directly to:

Jay’s Trading Maxim #44: If you are walking down the street and you trip and fall that’s one thing.  If you are climbing a mountain and you trip and fall that is something else.  And if you are gazing at the stars and don’t even realize that you are climbing a mountain and trip and fall – the only applicable phrase is “Look Out Below”.

So, the proper response is this: instead of walking along and staring at the stars, keep a close eye on the terrain directly in front of you.  And watch out for cliffs.

Top 5 companies as a % of S&P 500 Index

At times through history certain stocks or groups of stocks catch “lightning in a bottle.”  And when they do the advances are spectacular, enriching anyone who gets on board – unless they happen to get on board too late.  Figure 3 displays the percentage of the S&P 500 Index market capitalization made up by JUST the 5 largest cap companies in the index at any given point in time. 

Figure 3 – Top 5 stocks as a % of S&P 500 Index market cap (Courtesy: www.Bloomberg.com)

The anecdotal suggestion is pretty obvious.  Following the market peak in 2000, the five stocks listed each took a pretty significant whack as shown in Figure 4.

Figure 4 – Top Stocks after the 2000 Peak

Then when we look at how far the line in Figure 3 has soared in 2020 the obvious inference is that the 5 stocks listed for 2020 are due to take a similar hit.  And here is where it gets interesting.  Are MSFT, AAPL, AMZN, GOOGL and FB due to lose a significant portion of their value in the years directly ahead?

Two thoughts:

*There is no way to know for sure until it happens

*That being said, my own personal option is “yes, of course they are”

But here is where the rubber meets the road: Am I presently playing the bearish side of these stocks?  Nope.  The trend is still bullish.  Conversely, am I keeping a close eye and am I willing to play the bearish side of these stocks?  Yup.  But not until they – and the overall market – actually starts showing some actual cracks.

One Perspective on AAPL

Apple has been a dominant company for many years, since its inception really.  Will it continue to be?  I certainly would not bet against the ability of the company to innovate and grow its earnings and sales in the years ahead. Still timing – as they say – is everything.  For what it is worth, Figure 5 displays the price-to-book value ratio for AAPL since January 1990.

Figure 5 – AAPL price-to-book value ratio (Data courtesy of Sentimentrader.com)

Anything jump out at you?

Now one can argue pretty compellingly that price-to-book value is not the way to value a leading technology company.  And I probably agree – to a point.  But I can’t help but look at Figure 5 and wonder if that point has possibly been exceeded.

Summary

Nothing in this piece is meant to make you “bearish” or feel compelled to sell stocks.  For the record, I am still in the bullish camp.  But while this information DOES NOT constitute a “call to action”, IT DOES constitute a “call to pay close attention.” 

Bottom line: enjoy the bull market but DO NOT fall in love with it. 

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented represents the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

An Energetic Opportunity Forms

Two of my favorite sayings go like this:

*”Every situation in life represents an opportunity”

*”Opportunity is where you find it”

Nowhere is this truer than in the financial markets. 

To wit, in this article dated 3/26/2020 (cue the scary music) – when things looked their absolute worst – I highlighted four tickers in the energy sector (yes, THAT energy sector, the one that has been a disaster and loathed and unloved for some time now).  Now it would have taken a true “Buy when there is blood in the streets” mentality, and/or almost foolhardy nerves of steel to actually pile into those issues at the time. 

But that is sort of the point. 

Figure 1 displays the tickers and their price action since the close on 3/26/2020.

Figure 1 – Energy stocks highlighted in 3/26/20 (Courtesy ProfitSource by HUBB)

Figure 2 displays the comparative performance versus the S&P 500 and the Nasdaq 100.

Figure 2 – “Blood in the Streets” energy stocks versus major indexes

As you can see in Figure 2 these four stocks as a whole have actually outperformed both the S&P 500 Index and the Nasdaq 100 Index. 

Now the point IS NOT that I am some great stock-picker (because I am not).  The point is that, well, see the two quotes above.

A Broader Look at Energy

For someone with less of the “buy when there is blood in the streets” mentality and more of “trend-following” mentality, a simple trend-following method may soon (at long last) swing to the bullish side.

It works like this:

*Two “tickers” see their respective 5-week average cross above their respective 30-week average

*Ticker 1 is ticker XLE (the SPDR energy ETF)

*Ticker 2 is an index (I created) of securities that have an inverse correlation to the U.S. Dollar

Editors Note: To create an inverse index of the ticker XLE, you’ll first need to use the Matchmaker tool and run a correlation between XLE and your database of stocks. The stocks that correlate the least with have the highest negative correlation.

To create the index. Make a new list in AIQ Data Manager, create a new group ticker called ANTIUS3 and add it to the list. Add the least correlated tickers from Matchmaker to this group, then use Compute Group/Sector Indices to compute all dates for this list. You’ll now have an equivalent to the ANTIUS3.

You can see these two – along with their respective 5-week and 30-week – in Figure 3.

Figure 3 – Ticker XLE and Jay’s ANTIUS3 index w/5-week and 30-week averages (Courtesy AIQ TradingExpert)

As you can see in Figure 3 the two have a tendency to often move together.  At other times they do not.  The key point here is that we ONLY pay attention when the two tickers are both trending in the same direction.

Why is this important? 

Figure 4 displays the cumulative price growth for ticker XLE (as a proxy for the broad energy sector) under two separate circumstance:

*When BOTH XLE and ANTIUS3 are in uptrends (i.e., 5-week average ABOVE 30-week average)

*When EITHER XLE or ANTIUS3 is NOT in an uptrend (i.e., 5-week average BELOW 30-week average)

Figure 4 – XLE cumulative %+(-) depending on trend status for XLE and ANTIUS3

To put it in numbers:

When BOTH are in Uptrends: XLE = +82.3%

When EITHER is NOT in an Uptrend: XLE = -65.5%

Summary

Another glance at Figure 1 reveals that ANTIUS3 is in an uptrend and that XLE is not quite there yet.  So, at the moment there is no bullish signal from the method described above.  However, energy does appear to be “trying” to rally.  Investors looking for “opportunity” may be wise to keep an eye on the 5-week and 30-week averages of ticker XLE in the weeks and month ahead.

See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine

See also Jay’s “A Strategy You Probably Haven’t Considered” Video

See also Video – The Long-Term…Now More Important Than Ever

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented represents the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

The Bartometer

November 14, 2020

Hello Everyone,

Well, the election is over and and if Trump doesn’t win the contested vote then Biden is President. My biggest concern going forward is the race in Georgia that could switch the control of the senate to the Democrats enabling them unchecked control in the government. If this happens, and Democrats get rid of the filibuster rule there could be volatily in the stock and bond markets because: It could increase taxes on corporations, raise capital gains taxes and estate taxes by reducing the couple estate tax exclusion from $11 million to $3.5 milllion.

If the Democrats don’t win then there will be gridlock, and gridlock meaning that many of the tax increases may not pass. We will see what happens on January 5th 2021. Currently my Technical Analysis computer is still on a Buy-Hold as of about a week to 2 weeks ago, but it changes daily.

The increases in the Covid 19 virus is again causing Governors in many states to restrict access to non-essential business. This will reduce earnings of many corporations but increase the earnings of technology companies that are benefitting by people using their goods and services from home. Once a safe and effective vaccine is created by either Pfizer or Moderna, and when people feel safe to travel/use the goods and services of non essential companies will they prevail. then the Value stocks, eg., the cruise lines, airlines, resorts, restaurants, retail, manufacturing, telecommunications and more should rise. Until that time, the market will be volatile.

We are now in a seasonally strong time for the stock markets, but with the overhang of the senate election in Georgia, and the increase in Covid 19 coupled with the upcoming Flu season, caution is still somewhat appropriate. For people who are more Cautious in general, but over the next 1-2 years I still think the market could go higher even though the market is about 6% overvalued mostly because of the technology stocks. When the pandemic is even close to nearing its conclusion, the Value sector should continue its rise. So, small, mid and large value stocks could be the bigger winner, and if we get a selloff because of Covid 19, I will be buying those sectors.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until Novemeber 14, 2020. These are passive indexes.

Dow Jones +5.1%
S&P 500 +12.2%
EQUAL WEIGHTED S&P 500 +3.1%
NASDAQ Aggressive growth +29%
Large Cap Value -3.0%
I Shares Russell 2000 ETF (IWM) Small cap +5.2%
Midcap stock funds -4.66
International Index (MSCI – EAFE ex USA +2%
Financial stocks -10%
Energy stocks -36%
Healthcare Stocks +11%

Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration +6.5%
igh Yield Merrill Lynch High Yield Index +1.9%

Floating Rate Bond Funds -.60%
Short Term Bond +1.6%
Mutli sector bond funds +2.3%

I do expect potential major volatility over the next few months if the Republicans lose the Senate.

Classicalprinicples.com and Robert Genetskis Excerpts

Market Outlook

Stocks were mixed this past week. The previously out-of-favor small caps rose 3%-4%, when the Nasdaq and QQQs fell 2%-3%. The Dow and S&P500 gained 1%-2%. I expect stocks to continue to consolidate within the range of the past five months. Biden’s choice of advisors is interesting. His Chief of Staff was the one in charge of fighting Ebola. He admitted they had made every mistake imaginable in that fight. Another medical advisor says the country should lock down for 4-6 weeks and can simply pay workers and businesses for lost income. Just what Biden needs… another advisor with no concept of economics feeding him mush. It’s important to pay attention to Biden’s advisors. Their ideas can provide a clue to just how crazy things can get. Hopefully, cooler heads will prevent the chaos that would result from such complete nonsense.

A Look Back

The latest weekly data show the labor market continues to improve in spite of Covid. Initial unemployment claims fell to 709,000 in the first week of this month. This is down about 140,000 from the previous month. For the final week in October, the insured unemployment rate fell to 4.6%, down from 7.5% from the previous month. The number of people receiving insured unemployment payments fell to 6.8 million. There were close to 11 million a month ago.

What to expect this coming week

Look for the economic numbers to continue to show the economy performing well. Tuesday’s report for manufacturing in October should be a strong one. Business surveys show manufacturing production increasing dramatically in October. Hence, the Fed’s manufacturing number should be up substantially.

Source: Classical Principles.com

S&P 500 Chart Source: AIQsystems.com

The S&P 500 is above. As you can see my computer models gave a BUY signal on 10/30/20 and another one a couple days later. Another Bullish sign is when it broke above the middle of the W pattern. This is BULLISH unless it breaks down below that breakout. Now it has to breakout from the old high of 3648. If it does with conviction volume watch the 3750 area for some resistance. But it has to breakout from 3648 with a lot of volume first.

We are now in a bullish seasonal pattern for the market. One year from now I think the economy will do much better than it is now and the markets should be higher as well.

MACD or Momentum is still Bullish as the pink line has broken out of the blue line showing positive momentum.

Support levels on the S&P 500 area are 3546, 3392-3405, 3306 and 3244. 3143 is 200 Day Moving average
NASDAQ Support, 11621, 11300-11360, 11062. Resistance is 12075
These may be safer areas to get into the equity markets on support levels slowly on the accumulation areas.

THE BOTTOM LINE:

The market has rebounded nicely over the last month mainly because of earnings of companies beating expectations. The NASDAQ has done the best this year and should continue to do well IF the market continues higher. Now that the vaccine is a reality the value stocks should start to rise. You may want to call me to review everything including your 401(k) to determine the best allocation going forward. I like the USA market better than the international market.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative

92 High Street
Thomaston, CT 06787
860-940-7020

Securities and advisory services offered through SagePoint Financial, Inc. (SPF), member FINRA/SIPC. SPF is separately owned and other entities and/or marketing names, products or services referenced here are independent of SPF. 800-552-3319 20 East Thomas Road Ste 2000 Phoenix AZ 85012

Charts provided by AIQ Systems:

Technical Analysis is based on a study of historical price movements and past trend patterns. There is no assurance that these market changes or trends can or will be duplicated shortly. It logically follows that historical precedent does not guarantee future results. Conclusions expressed in the Technical Analysis section are personal opinions: and may not be construed as recommendations to buy or sell anything.

Disclaimer: The views expressed are not necessarily the view of Sage Point Financial, Inc. and should not be interpreted directly or indirectly as an offer to buy or sell any securities mentioned herein. Securities and Advisory services offered through Sage Point Financial Inc., Member FINRA/SIPC, an SEC-registered investment advisor.

Past performance cannot guarantee future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented in this letter should only be relied upon when coordinated with individual professional advice. *There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.
It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.

The price of commodities is subject to substantial price fluctuations of short periods and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated, and concentrated investing may lead to Sector investing may involve a greater degree of risk than investments with broader diversification.

Indexes cannot be invested indirectly, are unmanaged, and do not incur management fees, costs, and expenses.

Dow Jones Industrial Average: A weighted price average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

S&P 500: The S&P 500 is an unmanaged indexed comprised of 500 widely held securities considered to be representative of the stock market in general.

NASDAQ: the NASDAQ Composite Index is an unmanaged, market-weighted index of all over the counter common stocks traded on the National Association of Securities Dealers Automated Quotation System

(IWM) I Shares Russell 2000 ETF: Which tracks the Russell 2000 index: which measures the performance of the small capitalization sector of the U.S. equity market.

A Moderate Mutual Fund risk mutual has approximately 50-70% of its portfolio in different equities, from growth, income stocks, international and emerging markets stocks to 30-50% of its portfolio in different categories of bonds and cash. It seeks capital appreciation with a low to moderate level of current income.

The Merrill Lynch High Yield Master Index: A broad-based measure of the performance of non-investment grade US Bonds

MSCI EAFE: the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia, and Far East Index) is a widely recognized benchmark of non-US markets. It is an unmanaged index composed of a sample of companies’ representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends.

Investment grade bond index: The S&P 500 Investment-grade corporate bond index, a sub-index of the S&P 500 Bond Index, seeks to measure the performance of the US corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Bond index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap US equities.

Floating Rate Bond Index is a rule-based, market-value weighted index engineered to measure the performance and characteristics of floating-rate coupon U.S. Treasuries, which have a maturity greater than 12 months.



Good for Japan, Bad for US (Bonds)?

In the late 1980’s, Japan seemed destined to “rule the financial world”.  But when it comes to the financial markets – things don’t always pan out as they appear destined to.  The Nikkei Index topped out in late 1989, didn’t bottom out until February 2009 and has yet to return to its 1989 peak.

But it sure is trying.  This past week the Nikkei reached its highest level 1991.  So, hooray for the Japanese.  Back here in the US of A there may be a slightly different take.  For as we will discuss in a moment, what is good for Japanese stocks is (apparently) bad for US bonds.

Ticker EWJ

As our proxy for Japanese stocks we will use ticker EWJ (iShares Japan).  In Figure 1 you can the monthly action since the ETF started trading in 1996. 

Figure 1- Ticker EWJ monthly (Courtesy AIQ TradingExpert)

Since 1996 EWJ has broken in the $60 a share range on 5 previous occasions, only to be rebuffed.  You can see the latest upward thrust at the far right.  Will this be the time it breaks through?  It beats me and in fact that is not really the focus of this article.  The real question posed here is “what about U.S. treasury bonds?”  Huh?  Consider Figure 2. 

The top clip of Figure 2 displays a weekly chart of EWJ with a 5-week and 30-week moving average drawn.  The bottom clip displays a weekly chart of ticker TLT – the iShares ETF that tracks the long-term U.S. treasury bond. 

Note that – using highly technical terms – when one “zigs”, the other “zags.”

Figure 2 – EWJ vs. TLT (Courtesy AIQ TradingExpert)

The thing to note is the inverse correlation between the two – i.e., when Japanese stocks advance, US treasuries tend to decline and vice versa.  For the record (and for you fellow numbers geeks out there) the correlation coefficient in the last 2 years is -0.45 (1 means they trade exactly the same, -1 means they trade exactly inversely).

For my purposes:

*EWJ 5-week MA < EWJ 3-week MA = BULLISH for US treasuries

*EWJ 5-week MA > EWJ 3-week MA = BEARISH for US treasuries

Any real merit to this? 

*The blue line in Figure 3 displays the cumulative $ +(-) achieved by holding a long position in t-bond futures ($1,000 a point) when the EWJ indicator is BULLISH (for U.S. bonds)

*The orange line in Figure 3 displays the cumulative $ +(-) achieved by holding a long position in t-bond futures ($1,000 a point) when the EWJ indicator is BEARISH (for U.S. bonds)

Figure 3 – $ + (-) for Treasury Bond Futures when EWJ indicator is BULLISH for bonds (blue) or BEARISH for bonds (orange)

Summary

Bond investors might keep a close eye on Japanese stocks for a while.  If the latest thrust higher follows through and becomes the move that finally breaks out to the upside, the implication would appear to be negative for U.S. long-term treasury bonds.  On the flip side, if Japanese stocks fail once again to break through and reverse to the downside, then things might look a whole lot better for the 30-year US treasury.

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented represents the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

Market Timing update 10-28-20

It’s been a couple of months since we last looked at the Market Timing AI Expert System. Since that time the 400 rules that make up this AI system have generated a cluster of 3 down signals, followed by a buy signal and then most recently another down signal.

In this 7 minute video Steve Hill, CEO of AIQ Systems explores the signals and the confirmation techniques used to verfiy the ratings, together with the primary rules that fired.

Looking for Ideas “Off the Beaten Path”

For the record, I am an avowed “trend-follower.”  But I also know that no trend lasts forever.  So, while I have gotten pretty good at “riding along”, I do – like most people – like to “look ahead” since I do know that the landscape will forever be changing.

So, with the caveat that none of what follows should be considered a “call to action”, only as a “call to pay attention”, let’s venture out “into the weeds.”

AIROIL

Here is an ugly pairing – airline stocks and traditional energy stocks – yikes!  In Figure 1 you see an index that I created and followed call AIROIL comprised of three airline stocks and five “Big Oil” stocks.  During the pandemic meltdown this index fell to a level not seen since 2007 before “bouncing”. 

Editors Note: 

Jay's AIROIL Index is built using the AIQ Data Manager by creating a list andcreating a group ticker (in this case AIROIL).  Stocks are inserted under the ticker and the index is then computed using  Compute Group/Sector indices. 

Figure 1 – Jay’s AIROIL Index (Courtesy AIQ TradingExpert)

In the bottom clip you see an indicator I call VFAA.  Note that when VFAA tops out and rolls over, meaningful advances in the index tend to follow.  In addition, VFAA is at a high level seen only once before in 2009. Following that reversal, the index rose almost 500% over the next 9 years.

So, is now a great time to pile into airlines and big oil?  One would have to be a pretty hard-core contrarian to pound the table on this one.  The airlines are in terrible shape due to the pandemic and vast uncertainty remains regarding when things might improve.  And “Big Oil” is about as unloved as any sector has ever been. 

So, am I suggesting anyone “load up” on airlines and oil?  Nope.  What I am saying is that I am watching this closely and that if and when VFAA “rolls over” I may look to commit some money to these sectors on a longer-term contrarian basis.

International/Commodities/Value

Also known of late as “the barking dogs”.  If you have had money committed to any or all of these asset classes in recent years you are shaking your head right about now.  These areas have VASTLY underperformed a simple “buy-and-hold the S&P 500 Index” approach for a number of years.

Is this state of affairs going to change anytime soon?  Regarding “anytime soon” – it beats me.  However, I am on the record as arguing that at some point this WILL change.  History makes one thing very clear – no asset class has a permanent edge.  So, given that the S&P 500 Index has beaten these above mentioned by such a wide margin for such a long time (roughly a decade or more) I am confident that one day in the next x years, the “worm will turn.”

Figure 2 displays an index that I created and follow that tracks an international ETF, a commodity ETF and a value ETF.  The VFAA indicator appears in the bottom clip. 

Figure 2 – Jay’s INTCOMVAL Index (Courtesy AIQ TradingExpert)

Now if history is a guide, then the recent “rollover” by VFAA suggests that this particular grouping of asset classes should perform well in the coming years.  Two things to note:

1. There is no guarantee

2. There is absolutely no sign yet that “the turn” – relative to the S&P 500 – is occurring

Figure 3, 4 and 5 are “relative strength” charts from www.StockCharts.com.  They DO NOT display the price of any security; they display the performance of the first ETF list compared to the second ETF listed.  So, Figure 3 displays the performance of ticker EFA (iShares MSCI EAFE ETF which tracks a broad index of stocks from around the globe, excluding the U.S.) relative to the S&P 500 Index.

When the bars are trending lower it means EFA is underperforming SPY and vice versa.  The trend in Figure 3 is fairly obvious – international stocks continue to lose ground to U.S. large-cap stocks. 

Figure 3 – Ticker EFA relative to ticker SPY (Courtesy: www.StockCharts.com)

If your goal is to pick a bottom, have at it.  As for me, I am waiting for some “signs of life” in international stocks relative to U.S. stocks before doing anything.

Figure 4 displays ticker DBC (a commodity-based ETF) versus SPY and Figure 5 displays ticker VTV (Vanguard Value ETF) versus ticker VUG (Vanguard Growth ETF). Both tell the same tale as Figure 3 – unless you are an avowed bottom-picker there is no actionable intelligence.  Still, both these trends are now extremely overdone, so a significant opportunity may be forming. 

Figure 4 – Ticker DBC relative to ticker SPY (Courtesy: www.StockCharts.com)

Figure 5 – Ticker VTV relative to ticker VUG (Courtesy: www.StockCharts.com)

Summary

Two key points as succinctly as possible:

*Nothing is happening at the moment with everything displayed above…

*…But something will (at least in my market-addled opinion) – so pay close attention.

Jay Kaeppel

Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author.  The information presented represents the views of the author only and does not constitute a complete description of any investment service.  In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security.  The data presented herein were obtained from various third-party sources.  While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets.  Past performance is no guarantee of future results.  There is risk of loss in all trading.  Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance.  Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.

The Bartometer

October 16, 2020

Hello Everyone,

Over the last month, the stock markets continue to climb 2-5%, but they are not at the highs seen in the beginning of September when my computer models gave us a Sell signal. Two weeks ago My AIQ models went on 2 Buy signals and are currently on a Buy-Hold signal. The markets are now again fairly valued and somewhat overvalued mainly due to the 30 largest technology stocks that have gone up 100-500% this year. These stocks are skewing the market averages to the upside and making you believe the markets are doing better than they actually are as a whole. The bond markets are up slightly over the last month.

Many people have asked me what a Biden election would do for the the stock market. THE MARKET knows what to expect from President Donald Trump: business-friendly policies, less regulation, tariffs on imports – generally, the forces that have helped define the Trump stock market. But a few weeks out from the election, Democratic presidential nominee Joe Biden is up in the polls. So, what will happen to the stock market if Biden wins the general election this year?

First, it’s not about whether Biden wins or Trump wins. It’s also about who takes the Congress; if the Senate or House or both go Republican, then that could frustrate Biden’s agenda quite a bit. And Trump, if the Biden wins. Trumps policies are lower taxes for corporations and high net individuals and Bidens are to repeal those tax benefits. This could lead to lower corporate profits and lower earnings and lower stock prices. A Biden win could have positive benefits for Solar, wind and infrastructure companies. Overall, The increased tax rates will result in lower profits and likely lower share prices. This effect may be more than offset by a larger fiscal stimulus package passed by Congress and better trade relations with countries in Europe as well as with China. We will see what happens. If you are concerned about the direction of the markets after the election please call me over the next week to discuss your portfolio and how it may affect you. Remember, Biden is ahead on the polls and the market continues to rise. Why? Because earnings are continuing to rise and next year the economy should perfrom much better than it is doing currently. We are also going into seasonal strength from November to January. But I do expect potential major volatility over the next few months.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until October 16, 2020. These are passive indexes. Most of you are in mutual funds and this is not a representation of your investments. Yours can be higher or lower depending on your risk tolerance and financial goal objectives.

Dow Jones +2.0%
S&P 500 +9.0%
EQUAL WEIGHTED S&P 500 -3.0%
NASDAQ Aggressive growth +28%
Large Cap Value -7.0%
I Shares Russell 2000 ETF (IWM) Small cap -1.0%
Midcap stock funds -9 to -2%
International Index (MSCI – EAFE ex USA -5%
Financial stocks -17%
Energy stocks -34%
Healthcare Stocks +7% Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration +3%
High Yield Merrill Lynch High Yield Index +4% Floating Rate Bond Funds -1.6%
Short Term Bond +1.%
Fixed Bond Yields (10 year) .6% Yield

As you can see above, the only stock sectors that are benefitting are the companies benefitting by people being at home, from Zoom, to Amazon, to Facebook, gaming and more. Retail, manufacturing, airlines, value stocks, dividend stacks and many more are all down for the year.

Classicalprinicples.com and Robert Genetskis Excerpts:

Stocks were higher this past week with the Nasdaq and QQQs up 3%. Other major indexes were up 1⁄4% to 3⁄4%. There was little in the way of economic news to move markets. Earnings reports are just getting under way. My estimate is for S&P500 operating earnings of $30, up 23% from the second quarter but down 17% from a year ago. On balance, third quarter earnings reports should be a positive for stocks. Moreover, with the economy continuing to show signs of a strong recovery, investors should continue to anticipate a further recovery in earnings. In spite of the polls showing voters are likely to place Biden and Harris in charge of the nation’s policies, I continue to expect another four years of classical economic principles. In a democracy, the people get to choose which set of policies they’ll live under. I’m convinced voters will opt to continue the current set of policies.

A Look Back

Today’s report shows retail sales soared 2% in September. This brought quarterly sales 131⁄2% higher than the second quarter and up more than 5% from a year ago. The economy is close to having made a full recovery from its government- imposed shutdown. There is no need for another massive “stimulus” program, which would do more harm than good.

Weekly employment numbers continue to provide mixed signals. While weekly initial unemployment claims moved higher, insured unemployment payments and the insured unemployment ratescontinue to decline. Weekly initial unemployment claims increased close to 900,000 in the week of October 10th, up slightly from September’s average of 866,000. In contrast, the number of insured unemployment data show 10 million people received payments in the first week in October. This was down 21⁄2 million than at the beginning of September.

Despite concerns over a weak recovery, the S&P500 reached my estimate of fair value. In contrast, the Nasdaq has far exceeded all prior measures of reasonable valuation. How can stocks rise with the economy so weak? There are two reasons. First, the economy is not weak. It continues to recover rapidly. Second, monetary policy is more expansive than at any time in history.

Although stocks are either fully-valued or over-valued, they can still go higher. At this point, I’m comfortable continuing to ride the wave higher while holding 10% cash for use when the market corrects. Stay cautiously bullish.

Friday’s employment report shows a gain of 1.5 million private-sector workers in early July. The number of unemployed remains high at 16 million. The good news is that weekly unemployment insurance claims continued to improve through the end of July.

The ISM surveys of manufacturers and service companies also show employment contracting. However, these surveys show a strong surge in new orders, which will lead to an increase in jobs in August.

There are reasons why unemployment remains high. Given the uncertainty over the outlook, it’s natural to await new orders before hiring. Also, employers need to trim unessential costs to pay for the increased costs associated with the virus.

Finally, government payments not to work have appealed to many.

Source: Classical Principles.com

S&P 500 Chart Source: AIQsystems.com

The S&P 500 is above. As you can see the S&P 500 is about 2.5% above the old high hit in February 2020. The major reason is because the tech stocks like Apple, Tesla, Microsoft and the tech stocks continue to hit new highs while the value stocks and the dividend stocks continue to falter.

Remember, most stocks are down for the year. There is Buying Support at the OLD High of 3393 about 3% lower than where we are now and support at the Trend line of 3300. On the upside 3546 would be considered a breakout and positive. So, if there is a breakdown of the stock market over the next few weeks, 3393 will be a test. If my computer models go to a SELL signal and the S&P closes below 3393 I would raise cash and if the S&P 500 closes below the the Trendline currently 3300, I would raise more cash even though I think the economy will do better next year.

The first indicator under the price chart is the MACD or Moving Average Converge Divergence. It’s a measure of momentum When the Pink line crosses the blue line on the upside, then momentum and the markets look good and when they break on the downside we have to be more cautious. Currently things are ok.

The third graph is the level of markets being overbought and oversold. Currently the market is getting near a point where it is getting a little overbought. A few more positive days in the market and we will be very overbought.

The last graph is Stochastics. If the line rises above the 80 line as it currently is the market is getting somewhat overbought but it can stay like that for a while.

So we are getting over bought somewhat, the market can go higher from here but if it closes below the two support levels above I would get more Cautious.

The NASDAQ (WEEKLY CHART) is above. It represents the best in the COVID sector, Apple, ZOOM, Amzon, Activison, Microsoft, Shopify, Google, Facebook and more. These stocks are benefitting substantially by people staying at home. This sector will cool down when the vaccine becomes available, safe and effective. Up until that time the NASDAQ could do relatively better than the value sector or the manufacturing, financials, retail, airlines etc. There is a caveat that could happen and that is the technical break of the support levels. To the left is the TRENDLINE, notice it is again going straight up. It is approaching the old high of 12032. It’s cuurently at 11,671 about 2.5% below its old high. We will watch it daily, but if the NASDAQ closes below 11.593, currently, then it will have broken and close below a weekly and daily Trendline, at this point I would start to raise a little cash, because the NASDAQ is very overbought and could easily fall 5 – 10 % over the next month or two. We need to do our technical analysis daily. Currently, things look good, but we need to keep our eye on all situations going into the election. One year from now and longer term I think the global economy will do much better than it is now. But short term I am still concerned about the election and the future technical situation.

MACD or Moving Average Convergence Divergance or Momentum broke out to the upside and still looks ok. But if it breaks on the downside I will be more concerned. Currently, my computer models are not on a Sell, but it needs to be watched closely, especially now.

On Balance Voume is confirming the upside of the NASDAQ, this is a positive indicator that the NASDAQ should conitune on the upside, but things change quickly.

Chart Source:AIQsystems.com

  • Support levels on the S&P 500 area are 3458, 3392, 3306. 3544 is resistance.
  • NASDAQ Support, 11593, 11292, 11062, 10793, 10524 and 9,841
  • These may be safer areas to get into the equity markets on support levels slowly on the accumulation areas.

THE BOTTOM LINE:

The market has rebounded nicely over the last month mainly because of earnings of companies beating expectations. The NASDAQ has done the best and should continue to do well IF the market continues higher. Once the vaccine become closer to a reality the value stocks should start to rise. But up until that time the large, mid and small growth stocks could continue to dominate. You may want to call me to review everything including your 401(k) to determine the best allocation going forward. There is a major trend-line right below the markets, see above. If those are broken on a Close I will get Cautious to Very Cautious. It is important for the trendlines and the 50 day moving average to hold or it could start a correction. I like the USA market better than the international market.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative
92 High Street
Thomaston, CT 06787
860-940-7020

Technical Analysis is based on a study of historical price movements and past trend patterns. There is no assurance that these market changes or trends can or will be duplicated shortly. It logically follows that historical precedent does not guarantee future results. Conclusions expressed in the Technical Analysis section are personal opinions: and may not be construed as recommendations to buy or sell anything.

Disclaimer: The views expressed are not necessarily the view of Sage Point Financial, Inc. and should not be interpreted directly or indirectly as an offer to buy or sell any securities mentioned herein. Securities and Advisory services offered through Sage Point Financial Inc., Member FINRA/SIPC, an SEC-registered investment advisor.
Past performance cannot guarantee future results. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented in this letter should only be relied upon when coordinated with individual professional advice. *There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.
It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the market.
The price of commodities is subject to substantial price fluctuations of short periods and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated, and concentrated investing may lead to Sector investing may involve a greater degree of risk than investments with broader diversification.
Indexes cannot be invested indirectly, are unmanaged, and do not incur management fees, costs, and expenses.
Dow Jones Industrial Average: A weighted price average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
S&P 500: The S&P 500 is an unmanaged indexed comprised of 500 widely held securities considered to be representative of the stock market in general.
NASDAQ: the NASDAQ Composite Index is an unmanaged, market-weighted index of all over the counter common stocks traded on the National Association of Securities Dealers Automated Quotation System
(IWM) I Shares Russell 2000 ETF: Which tracks the Russell 2000 index: which measures the performance of the small capitalization sector of the U.S. equity market.
A Moderate Mutual Fund risk mutual has approximately 50-70% of its portfolio in different equities, from growth, income stocks, international and emerging markets stocks to 30-50% of its portfolio in different categories of bonds and cash. It seeks capital appreciation with a low to moderate level of current income.
The Merrill Lynch High Yield Master Index: A broad-based measure of the performance of non-investment grade US Bonds
MSCI EAFE: the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australia, and Far East Index) is a widely recognized benchmark of non-US markets. It is an unmanaged index composed of a sample of companies’ representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends.
Investment grade bond index: The S&P 500 Investment-grade corporate bond index, a sub-index of the S&P 500 Bond Index, seeks to measure the performance of the US corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Bond index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap US equities.
Floating Rate Bond Index is a rule-based, market-value weighted index engineered to measure the performance and characteristics of floating-rate coupon U.S. Treasuries, which have a maturity greater than 12 months.


The RS4r: Tracking Relative Strength In Four Dimensions

Relative strength has more information embedded within it than meets the eye. Here is a way to identify and compress several dimensions of relative strength into one single scalable value, the RS4r, which allows you to compare and then rank securities for robustness across timeframes and shifting market conditions…

The importable AIQ EDS file based on James Garofallou’s article in
Stocks & Commodities magazine September 2020 issue, “The RS4r: Tracking Relative Strength In Four Dimensions,” can be obtained on request via email to info@TradersEdgeSystems.com. The code is also available here:

! The RS4r: Tracking Relative Strength in Four Dimensions
! Author: James Garofallou, PhD, TASC Sept 2020
! Coded by: Richard Denning, 7/18/2020

!INPUTS
C is [close].
len1 is 10.
len2 is 15.
NumIndx is 4.
BuyLvl is 80.

!FORMULAS
SPYc is TickerUDF("SPY",C).      !SP500
QQQc is TickerUDF("QQQ",C).     !NASDAQ100
MDYc is TickerUDF("MDY",C).     !SP400
IWMc is TickerUDF("IWM",C).      !Russel2000

RS1spy is C/SPYc.
RS1qqq is C/QQQc.
RS1mdy is C/MDYc.
RS1iwm is C/IWMc.

FastSPY is Expavg(RS1spy,len1).
MedSPY is Simpleavg(FastSPY,7).
SlowSPY is Simpleavg(FastSPY,15).
VSlowSPY is Simpleavg(SlowSPY,30).

FastQQQ is Expavg(RS1qqq,Len1).
MedQQQ is Simpleavg(FastQQQ,7).
SlowQQQ is Simpleavg(FastQQQ,15).
VSlowQQQ is Simpleavg(SlowQQQ,30).

FastMDY is Expavg(RS1mdy,Len1).
MedMDY is Simpleavg(FastMDY,7).
SlowMDY is Simpleavg(FastMDY,15).
VSlowMDY is Simpleavg(SlowMDY,30).

FastIWM is Expavg(RS1iwm,Len1).
MedIWM is Simpleavg(FastIWM,7).
SlowIWM is Simpleavg(FastIWM,15).
VSlowIWM is Simpleavg(SlowIWM,30).

Tier1spy is iff(FastSPY>=MedSPY and MedSPY>=SlowSPY and SlowSPY>=VslowSPY,10,0).
Tier1qqq is iff(FastQQQ>=MedQQQ and MedQQQ>=SlowQQQ and SlowQQQ>=VslowQQQ,10,0).
Tier1mdy is iff(FastMDY>=MedMDY and MedMDY>=SlowMDY and SlowMDY>=VslowMDY,10,0).
Tier1iwm is iff(FastIWM>=MedIWM and MedIWM>=SlowIWM and SlowIWM>=VslowIWM,10,0).

Tier2spy is iff(FastSPY>=MedSPY and MedSPY>=SlowSPY and SlowSPY<VslowSPY,9,0).
Tier2qqq is iff(FastQQQ>=MedQQQ and MedQQQ>=SlowQQQ and SlowQQQ<VslowQQQ,9,0).
Tier2mdy is iff(FastMDY>=MedMDY and MedMDY>=SlowMDY and SlowMDY<VslowMDY,9,0).
Tier2iwm is iff(FastIWM>=MedIWM and MedIWM>=SlowIWM and SlowIWM<VslowIWM,9,0).

Tier3spy is iff(FastSPY<MedSPY and MedSPY>=SlowSPY and SlowSPY>=VslowSPY,9,0).
Tier3qqq is iff(FastQQQ<MedQQQ and MedQQQ>=SlowQQQ and SlowQQQ>=VslowQQQ,9,0).
Tier3mdy is iff(FastMDY<MedMDY and MedMDY>=SlowMDY and SlowMDY>=VslowMDY,9,0).
Tier3iwm is iff(FastIWM<MedIWM and MedIWM>=SlowIWM and SlowIWM>=VslowIWM,9,0).

Tier4spy is iff(FastSPY<MedSPY and MedSPY>=SlowSPY and SlowSPY<VslowSPY,5,0).
Tier4qqq is iff(FastQQQ<MedQQQ and MedQQQ>=SlowQQQ and SlowQQQ<VslowQQQ,5,0).
Tier4mdy is iff(FastMDY<MedMDY and MedMDY>=SlowMDY and SlowMDY<VslowMDY,5,0).
Tier4iwm is iff(FastIWM<MedIWM and MedIWM>=SlowIWM and SlowIWM<VslowIWM,5,0).

RS2spy is Tier1spy + Tier2spy + Tier3spy + Tier4spy.
RS2qqq is Tier1qqq + Tier2qqq + Tier3qqq + Tier4qqq.
RS2mdy is Tier1mdy + Tier2mdy + Tier3mdy + Tier4mdy.
RS2iwm is Tier1iwm + Tier2iwm + Tier3iwm + Tier4iwm.


RS3x is  (RS2spy+RS2qqq+RS2mdy+RS2iwm).

RS4 is (RS3x/NumIndx)*10.
RS4osc is simpleavg(RS4,3).
mvSig is simpleavg(RS4osc,5).
RS4r is round(RS4).

mvRS4 is expavg(RS4r,4).
RS4up is iff(RS4r >= 80 or RS4r > mvRS4,1,0).

X is iff(RS4 >= 80,1,0).
R5 is iff(RS4up =1,round(simpleavg(X,len2)*100),0).

Buy if R5 >= BuyLvl.
ExitBuy if R5 < BuyLvl.

ShowValues if 1.

Code for the RS4r is included in the EDS file. I also coded a system that uses the RS4r (R5). I used four independent ETFs as indexes rather than the 11 mutual funds that the author used. I used SPY, QQQQ, MDY, and IWM. The trading system buys (long only) when the R5 >= 80 and exits the long position when RS4r < 80. The summary EDS backtest report for trading this system on the Nasdaq 100 stocks (commission & slippage not subtracted) is shown in Figure 13 and a sample trade on DISH with the R5 indicator is shown in Figure 12.

Sample Chart

FIGURE 12: AIQ. Chart of DISH with R5 indicator and sample trade using R5 indicator >= 80 to buy.

Sample Chart

FIGURE 13: AIQ. Summary EDS backtest report for the R5 system that trades the Nasdaq 100 stocks over the last 4 years.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems