I hope you’ve had a great week. Despite the gloomy macroeconomic backdrop, it has been a good one for investors in general. With growing optimism that a trade deal between the US and China may be achieved (at least, partially) there now appears to be more support for equity indices around all-time highs. As I noted in last week’s post, and explained at length in our latest Trading Club video analysis, on balance there seems to have been an improvement in conditions on the previous month. Whilst still negative, things are arguably ‘less negative’, which is important to note given how markets are said to trade ‘at the margin’ of change.
Our business cycle Checklist showed a score of -1.5 at the beginning of this month...
…yet the market (green line) has registered a new monthly closing high.
I found this post on Twitter earlier in the week, which contrasts this outlook and supports the idea that stocks should make further gains on the basis of having reached a new all-time high. It basically suggests to buy stocks when the market closes (monthly) at an all-time high, and switch to bonds when stocks close lower on a monthly basis.
Whilst we do not endorse this style of trading (nor can we vouch for the validity of this third party backtest) it does provide food for thought. Here you can see a second test for a more recent time frame, focusing instead on global equities (MSCI World Index) rather than the S&P 500.
So in summary, it remains of vital importance to trade with a proven fundamental process, but there is (apparently) little reason to ‘doubt’ a market at an all-time high - in other words, the momentum, for now at least, may well be towards the upside. Of course, that is not to say that one should necessarily buy equities on this basis - but it may be useful in weighing your decision whether to short the market, or simply stay in cash.
Whatever your view, if you would like to join us for our full analysis including new insights each week, or learn from the ground up with online tuition from Lex in our Million Dollar Traders online course, then join us today and take your financial knowledge to the next level right away!
Have a great weekend,
James Helliwell | Chief Investment Strategist