Don't Trade Without Your Stock Market Sherpa
Posted on September 13, 2019
I hope you’ve enjoyed your week and weren’t hiding beneath the duvet in fear of the recession that I highlighted in last week’s post! The equity market has in fact been a good place to be for investors, with major benchmarks seeing gains of around 1 or 2%. Bonds on the other hand have been trounced, as overly optimistic expectations for QE began to see a more conservative reality, with the ECB leading the charge this week before handing the baton to the Fed to announce their stance this coming Wednesday. Here you can see the back up in yields that I correctly anticipated earlier this month (waiting for the retracement to potentially get long bonds expecting a new low in the yield):
All in all, it has felt like 'business as usual’ in the market, with sentiment around the prevailing narrative reverting from an extreme on the latest news flow. But beneath the surface, I feel something different is definitely taking place, as the sudden sell off in ‘momentum’ names demonstrated.
During such times it is absolutely vital to stick to your trading process, as we explained in our Trading Club video earlier this week. Whilst I cannot share everything here out of courtesy to our paying members, I would like to demonstrate how our equity market Checklist did in fact alert us to the possibility of a short term rally in stocks this month, despite the deteriorating macro picture. Here you can see the +2 that I highlighted to club members in real time:
As you can see, the S&P 500 futures have rallied about +4.5% this month from a just below 2900, coincident with our US Equity Checklist turning positive.
Elsewhere, this move was also anticipated and confirmed by our Market Risk Checklist, which similarly had flipped positive coming in to September. At +2, it suggested owning risk assets (such as stocks) in favour of safety assets (such as bonds).
The ratio chart below shows the relative performance of our preferred measure of ‘risk vs safety’ pair, being industrial stocks vs. consumer staples. This ratio has risen in line with what our Checklist was telling us - to seek riskier, cyclical sectors (industrials) over more defensive, non-cyclical sectors (consumer staples).
Whilst it's rarely plain sailing as an investor, with indicators almost inevitably providing some degree of conflicting information, it absolutely is possible to still make money by following a robust process like ours. There may be no guarantees, but you certainly stand a better chance than the typical retail trader who is comparatively under educated and under prepared to take on professionals like Lex and myself in the markets. You can, of course, join us at the Academy to learn from our expertise and put out process in to practice with full support and ongoing updates or you can attempt to climb Everest alone without the any equipment or a sherpa. The choice is yours, but do not hesitate to contact us for more information and see how we can help you on your journey with our Million Dollar Traders course and Trading Club.
Wishing you a wonderful weekend,
James Helliwell | Chief Investment Strategist
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