Category Archives: market timing

The Bartometer

May 8, 2020

Hello Everyone,

I hope all of you are keeping healthy in this pandemic. Some of you may have had the COVID-19 virus or have a family member who may have contracted it, but for the most part as a whole, we are working together to get through this and doing okay.

RECAP:

Last month I illustrated the previous time we have a virus that was similar to the Coronavirus, and that was the Spanish Flu back in 1918. It was a horrible time where more than 51 million and some estimates are up to 100 million people died. More than 675,000 people died from the Spanish flu in the U.S. It infected more than 50 million people worldwide and was a disaster. There was very little anyone could do during that time, and there was little medicinal relief. The Spanish Flu is called the most significant
medical holocaust in history. And yet the stock markets in this country fell 34% from the beginning of the flu to the lowest part in the stock market. A year later, it went up 80% approximately from its low to its high. Am I saying this will happen again? No, I’m not planning on it, but if the world recovered from a 50 million person loss and a massive pandemic it had when the world population was much smaller, then we should recover and move beyond this as well.

Over the last month, the stock and bond markets, especially the NASDAQ, have soared with the NASDAQ now up 1.66% for the year. The reason is that with most people confined to their homes, stocks like Amazon, Google, Netflix, Facebook, Microsoft, Zoom, DocuSign, and more are being used, contributing to their earnings and revenues dramatically. Stocks like Airlines, cruise ships, restaurants, manufacturing, and many more are not doing well. That is why you will see below that the sectors in terms of which areas are declining and which are growing are very different.

CURRENT TRENDS:

The growth sector has done relatively well, but only a few large companies have contributed. These few large companies are why the Equal Weighted S&P 500 is -16.2% but the regular S&P is down 9%. I continue to like the large tech and health care companies, the NASDAQ is nearing the end of its game, and it is not much below its high it hit in February. The Midcaps are down 18-23% this year, and particular issues have more of a potential move upward, in my opinion. A year or two out from this point, I think this sector and the markets should be nicely higher. Can it go down from here into the fall and winter if we have a second wave down? Absolutely, but it is an excellent time to add money to your equity side in a diversified portfolio over the next 6 months. Many people are doubling up their contributions on a monthly basis. If you are more than five years before retirement, you may want to think about doing something similar. If stocks are cheap then isn’t it smart to buy when they are reasonably priced if over the long term the market should be higher?

Have we gone down this much over the last 50 years? Yes, many times. Has it recovered each time? Yes. Because capitalism works and good companies over the long term make money, we are all in this together.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until May 8, 2020. These are passive indexes.
Dow Jones -14.0%
S&P 500 -9.0%
EQUAL WEIGHTED S&P 500 -16.1%
NASDAQ Aggressive growth +1.66%
I Shares Russell 2000 ETF (IWM) Small cap -20%
Midcap stock funds -18-23%
International Index (MSCI – EAFE ex USA -19.0%
Financial stocks -27%
Energy stocks -34%
Healthcare Stocks -.50%

Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration -8.5%
High Yield Merrill Lynch High Yield Index -9.4% Floating Rate Bond Funds -7.3%
Short Term Bond -3.52%
Fixed Bond Yields (10 year) .68% Yield
As you see above, the only index doing well is Large tech. You should have this sector, but most everything else is starting to recover.

Classicalprinicples.com and Robert Genetskis Excerpts:

After soaring a week ago, stock prices turned mixed. The Nasdaq and Nasdaq 100 were up 1% and 4%, while the S&P 500 and Dow fell 1%, and small caps were down 2% to 4%.

The economic collapse in April has led forecasters to revise downward estimates of the decline in output, employment, and profits. Last week I expected the economy would begin to recover in May. It will. Unfortunately, ongoing restrictions from Governors and the stimulus bill will limit the initial stage of the recovery. Due to these current restrictions, means the economy will not show signs of a meaningful recovery until June at the earliest.

As a result, the financial damage to the economy in terms of lost output, jobs, wages and salaries, profits and debt will continue for another month

While several technology companies are holding up well, non-tech companies are suffering. And few companies are willing to guide earnings.

The 800-pound gorilla continues to be the outlook for the virus. Containing the spread of the virus remains a crucial problem.

Some countries and states succeed without a lockdown, while others are less successful. Due to the differing results, it raises the near-term uncertainties over how quickly the economy can recover. If setbacks occur, stocks will be vulnerable.

Despite a 15%+ unemployment rate in April and probably higher in May, the stock prices continue to anticipate better times and a recovery in the markets. I am optimistic longer term for the stock markets, although the short term could be more volatile.

Dr. Genetski’s opinion is that every person and circumstance is different. There are no guarantees expressed or implied in any part of this correspondence.
Source: Classical Principles.com

DOW JONES

As you can see the Dow went down to the 18,300 level and has risen to the 50% Fibonacci Level at 23,901. In other words when markets decline, they tend to retrace much of the decline at the 23.8%, the 50% the 61.8% and the 78.6% level and stall and reverse. Notice at the 23901 level the Dow tended to hang around there for a couple of weeks and tried to go up to the next level at the 25236 level. This is the next level where the Dow Jones could stall if it keeps rising. The Dow Jones is made up of a lot of large industrial, and value stocks that have really not participating in the rally as much as the NASDAQ tech stocks seen on the next page. Watch for a trend line break of 23901 to confirm another down leg to the 22565 if it is on big volume. This is short term. Long term I am still positive over the next 2 years or so, when we get a vaccine and a treatment, and more herd immunity.

The SK-SD stochastics model. If it is above the 88 level like it is now the market is a little over bought and this means don’t buy now short term.
Volume over the last month or so the market has been rising on low volume. This means people are afraid to commit and there may not be a lot of conviction on the rally.

NASDAQ QQQ

The true Champ this year again has been the NASDAQ. These stocks include, Facebook, Amazon, Docusign, Paypal, Mcrosoft, Netflix, etc. All of the stocks that benefit by you and your businesses being home. This QQQ are the top 100 NASDAQ stocks and is now up 3% plus for the year while everything else in the normal world is down 16-38%. The QQQ is now getting a little OVERBOUGHT so I would not go out and buy a bunch of tech stocks here. In fact, the QQQ is approaching a pretty substantial resistance level. The first is a gap fill and could bring the QQQ to 230.55 and reverse or it could reach its old high of 237 and reverse. Longer term I think it will break through the old high, but we are now getting to a point I think the QQQ has gone up as far as it should. So watch the 230.55 to fill the gap and reverses or the old high of 237 area.

The SK-SD Stochastics is overbought just like it was in the Dow Jones.
The Momentum indicator gave a Buy signal at the blue arrow as it as the pink crossed the blue line, if it crosses the blue lien going down it is a SELL. This large tech area is still long term bullish, but short term I would take a few chips off the table as an index. The midcap, small cap and large cap value sector has a lot more to recover.

If the QQQ falls or closes below 216.8 or breaks the trend line I am getting Cautious to very Cautious.

SUPPORT LEVELS:

 Support levels on the S&P 500 area are 2882, 2796, 2649, and 2500. These might be accumulation levels, especially 2649, or 2500. 2936 and 3015 is resistance.
 Support levels on the NASDAQ are 9036, 8612, and 7856 Topping areas 9323 to 9573.
 On the Dow Jones support is at 23,901, 22,569, and 20912. Topping areas 25,236 and 27,077.
 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 on the NASDAQ tech stocks that benefit from people staying at home and using all of the tech companies to their benefits. This stay “at home” policy has increased demand for technology, and why the internet stocks have done so well. The other part of the markets from the financial to energy and other value stocks are still down from 18-33%. It is all about the growth sector that is benefiting the most. Over the long term, I am very bullish on the market, but over a short time, I can see a topping or sideways to down on the large growth companies as they are now reasonably priced. If the market continues to do well, I would expect the Midcaps to start to outperform. But there is a caveat. There are trend-line right below the markets, and if they are broken and close below those areas, then the markets could start a correction again. Trend-lines are essential to hold. If they don’t hold, then there could be a setback to support the levels stated above. I still like the USA market better than the international one.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative
5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408



SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.

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, and 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.

Money Flow; The Money Flow Index (MFI) is a momentum indicator that measures the flow of money into and out of a security over a specified period. It is related to the Relative Strength Index (RSI) but incorporates volume, whereas the RSI only considers SK-SD Stochastics. When an oversold stochastic moves up through its MA, a buy signal is produced. Furthermore, Lane recommends that the stochastic line be smoothed twice with three-period simple moving averages: SK is the three-period simple moving average of K, and SD is the three-period simple moving average of SK

Rising Wedge; A rising wedge is a technical indicator, suggesting a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex

The Bartometer

April 7, 2020

Hello Everyone,

The 2020 COVID-19 Virus has adversely affected the entire world, and this will go down as one of the most volatile years in the stock and bond market in generations and even more volatile than the 2008 Bear Market.

CURRENT MARKET CONDITIONS:

This reason is that the declines came over eight days and not like the 2007-2009 decline which took a year and one half. The great recession of 2008 was a humanmade financial problem and this is a virus where very few are working. In the Recession of 2008, people were at least going to work and going out and spending money to support the economy. Now we are all destined to stay in the house unless we have an essential business. But the U.S. Government is doing everything it can to give grants and forgivable loans so that the economy doesn’t totally crash. That is better than in 2008. It is still serial to be confined to your house or go for a walk.

When we get our statement of our investments from our 401(k) s or from these accounts, you will see pretty large drops in values in the investment account and you will wonder if this is all worth it to stay in it or are we all destined just to make 1-3% in a savings account or a 3% fixed annuity with me. Right now getting 3% with no fees looks pretty good.

If you believe that good stocks and funds from successful growing businesses do well over the long term and this sell-off in the markets are BUYING opportunities over the next few months you may want to dollar cost average into the markets. If you believe that this COVID-19 virus will soon be over within months and that 1 to 3 years from now the markets will be higher than they are now is it worth holding on OR Buying more when markets are lower? The question is if you are buying or investing for the next 1-20 years. Do you like suitable stock and bond investments that are cheap now or more expensive? If your answer is yes, than you may want to average into the markets over the next few months as it is down during this pandemic.

MARKET RECAP:

On my last 3 Bartometers I was getting and got Very Cautious about the stock and bond markets, but did I expect this? Not really. I said if the NASDAQ broke 9200, I will get very Cautious but a 25 to 35% decline I did not expect. The markets had rallied 20%+ from the low hit a couple of weeks ago but still, the markets are down 17-20% into 2020. Are we in a recession now? I’d say yes, but it is forced because of COVID-19, but it will be one just because of the number of people laid off.

In the following pages are discussions of the long term of the markets, what do in a Bear market and my technicals of the markets going forward. But above I would like to say that even though American Capitalism is under fire, and also though the market got hurt as well as our portfolios, we will rise to the COVID-19 challenge like any other war or attack on the United States of America going back to the Revolutionary War to WW1, WW2, and all the other wars we had in our history. This country and its citizens will find a vaccine to this virus and I believe in my heart that 1 to 2 years from now this market should be nicely higher. Dollar-cost averaging currently buying a lower priced shares of good companies should, with no guarantees expressed or implied, be a good deal higher over the next few years. What do you think? Have we gone down this much over the last 50 years? Yes, many times. Has it recovered each time? Yes. Because capitalism works and good companies over the long term make money.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until April 7, 2020. These are passive indexes.
*Dow Jones -20%
S&P 500 -17%
NASDAQ Aggressive growth -9%
I Shares Russell 2000 ETF (IWM) Small cap -31%
Midcap stock funds -29%
International Index (MSCI – EAFE ex USA -22%
Investment Grade Bond -4%
High Yield Bond -13%
Government bond +4%
The average Moderate Fund is down -16% this year fully invested as a 65% in stocks and 35% in bonds and nothing in the money market.

WANT TO SHOW YOU THE YEAR BY YEAR RETURNS OF THE S&P 500 TOTAL RETURNS BY YEAR

WHAT HAPPENED TO THE MARKETS DURING THE PANDEMIC AND SPANISH FLU IN 1917-1918:

The stock market today is looking a lot like it did a century ago, and if Great Hill Capital’s Thomas Hayes’s interpretation of the trendlines is on point, the bottom could be approaching.

“Just as the market started discounting the worst-case scenario in 1917,” he wrote, “it was already discounting a recovery months before the worst-case scenario occurred in 1918.”

What was going on in 1917? The Spanish Flu was just starting to bubble up, with the deadliest month of the whole pandemic not hitting until October 1918 — by then, as you can see from this chart, the Dow Jones Industrial Average DJIA, -1.68% had already begun to heal.


Hayes then posted this chart of the modern-day market plunge, noting that the nasty drawdowns amid the early stages of both pandemics were virtually the same.

More than 51 million people died globally in the Spanish Flu Pandemic, and the market rebounded more than 80% in the following two years from its bottom to top. This is no guarantee the market will rally that much or at all, but the USA is now better equipped to handle a massive Pandemic then in 1918 to 1919. Also, many companies are internet companies that could do well as people shop and do business over the internet; in addition, it is much more diversified and global than it was in 1918. For these reasons and more, I believe that the long term is more promising now for a recovery over the next 1 to 2 years.

There is one caveat; the Commodity index is right near its low of 2009, where it found it at a 29-year support level. If that breaks through that level, then we can go into a deeper recession for a more extended period.
The market rebound depends on how quickly the government fixes this problem and people go back to work. I am optimistic over the next two years; but understand a recession should happen at least for a few quarters. I think the Recession should be relatively short term.

Since this graph was made a week ago, look at the next page and it is up to date. COMPARE the next graph to the Pandemic of 1918 and it is starting to look more like it. There is no guarantee expressed or implied, but look at the Pandemic and then the updated Dow on the next page.

The Dow Jones is above. This is the Daily Chart. As you can see, the decline of the Dow Jones Average was relatively very quick. Current is sitting at 22653 right BELOW THE 50% Fibonacci retracement level. A normal BEAR market usually tops on a countertrend rally right at a 50% or 61.8% Fibonacci level and declines or puts in a short top. So if this is true in this case there could be resistance at 23,901 or 25,236 area. There is also some resistance at the 200 day moving average at 26,660 and sloping downward. My AIQ models gave a BUY on 3/24/2020, but only a short term Buy not a longer term Weekly Buy. So even though the market is somewhat short term Bullish, there could be a short term top at 23,901, 25,236 or the 26,660 areas.

Momentum is good but can change quickly on the downside after earnings come out that will be bad. A buy signal is giving when the lavender line crosses blue line and Sell signal when it does it on the downside

One thing I don’t like is the On Balance Volume Line. Notice as the market is going up it is going up on low relative volume. This is somewhat negative. Over all I think the market should be higher when this is all done and when there is a vaccine and people go on living their normal lives it should be better. This market will be volatile. The market may continue on the upside but over the short term I think the rally is limited to the levels I said above on the Fibonacci levels and the 200 day moving average. In addition, the market may not like the earnings numbers over the next couple of weeks and the market could drop again towards 20000 or below again.

Key investor Points to remember in a Bear Market:

  • Stay calm and keep a long-term perspective.
  • Maintain a balanced and broadly diversified portfolio.
  • Balance equity portfolios with a mix of dividend-paying companies and growth stocks.
  • Choose funds with a strong history of weathering market declines.
  • Use high-quality bonds to help offset equity volatility.
  • Advisors can help investors navigate periods of market volatility

THE BOTTOM LINE:

The market has had its worst decline in 10 years. It has recovered about 35% of the loss over the last week. It is not a time to sell during this decline in my opinion but for some of you it would a great time to start to nibble in your mutual funds on setbacks because the COV19 virus should be controlled over the next year and if you look at all of the virus pandemics we have had, it has been a good time to Buy if your goals are longer term. It is not a time to throw caution to the wind but call me to make selective dollar-cost average buys. In addition, when EARNINGS come out in the next 2 weeks the stock market could go back down again. Remember you buy when there is blood in the streets. Bonds should be more in the investment-grade or short- term investment grade side. If you are a long-term investor and have 20 years+ towards retirement use sell-offs to add through dollar-cost averaging. Diversification is essential but portfolios should be somewhat safer.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative
5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408



SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.

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, and 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.

Money Flow; The Money Flow Index (MFI) is a momentum indicator that measures the flow of money into and out of a security over a specified period. It is related to the Relative Strength Index (RSI) but incorporates volume, whereas the RSI only considers SK-SD Stochastics. When an oversold stochastic moves up through its MA, a buy signal is produced. Furthermore, Lane recommends that the stochastic line be smoothed twice with three-period simple moving averages: SK is the three-period simple moving average of K, and SD is the three-period simple moving average of SK

Rising Wedge; A rising wedge is a technical indicator, suggesting a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex

March and April to the Rescue?

Well that got ugly quick.  For the record, if you have been in the markets for any length of time you have seen this kind of action plenty of times.  An index, or stock, or commodity or whatever, trends and trends and trend steadily and relentlessly higher over a period of time.  And just when it seems like its going to last forever – BAM.  It gives back all or much of its recent rally gains very quickly.  Welcome to the exciting world of investing.

I make no claims of “calling the top” – because I never have actually (correctly) called one and I don’t expect that I ever will.  But having written Part I and Part II of articles titled “Please Take a Moment to Locate the Nearest Exit” in the last week, I was probably one of the least surprised people at what transpired in the stock market in the last few sessions. 

Of course the question on everyone’s lips – as always in this type of panic or near panic situation – is, “where to from here?”  And folks if I knew the answer, I swear I would tell you.  But like everyone else, I can only assess the situation, formulate a plan of action – or inaction, as the case may be – and act accordingly.  But some random thoughts:

*Long periods of relative calm followed by extreme drops are more often than not followed by periods of volatility.  So, look for a sharp rebound for at least a few days followed by another downdraft and so on and so forth, until either:

a) The market bottoms out and resumes an uptrend

b) The major indexes (think Dow, S&P 500, Nasdaq 100, Russell 2000) drop below their 200-day moving averages.  As of the close on 2/25 both the Dow and the Russell 2000 were below their 200-day moving average.  That would set up another a) or b) scenario.

If the major indexes break below their long-term moving averages it will either:

a) End up being a whipsaw – i.e., the market reverses quickly to the upside

b) Or will be a sign of more serious trouble

The main point is that you should be paying close attention in the days and weeks ahead to the indexes in Figure 1.

Figure 1 – Major indexes with 200-day moving averages (Courtesy AIQ TradingExpert)

One Possible Bullish Hope

One reason for potential optimism is that the two-month period of March and April has historically been one of the more favorable two-month periods on an annual basis.  Figure 2 displays the cumulative price gain achieved by the S&P 500 Index ONLY during March and April every year since 1945.  The long-term trend is unmistakable, but year-to-year results can of course, vary greatly.

Figure 2 – S&P 500 cumulative price gain March-April ONLY (1945-2019)

For the record:

S&P 500 March-AprilResult
Number of times UP55 (73%)
Number of times DOWN20 (27%)
Average UP%+5.0%
Average DOWN%(-3.4%)

Figure 3 – Facts and Figures

Will March and April bail us out?  Here’s hoping.

As an aside, this strategy is having a great week so far.

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 does not represent 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.

Please Take a Moment to Locate the Nearest Exit (Part II)

To put this piece in context please refer to Part I here.

Part I detailed the Good News (the stock market is still very much in a bullish trend and may very well continue to be for some time) and touched on one piece of Bad News (the market is overvalued on a long-term valuation basis).

The Next Piece of Bad News: The “Early Lull”

In my book, Seasonal Stock Market Trends, I wrote about something called the Decennial Pattern, that highlights the action of the stock market in a “typical” decade. 

The Four Parts of the “Typical Decade” are:

The Early Lull: Market often struggles in first 2.5 years of a decade

The Mid-Decade Rally: Market typically rallies in the middle of a decade – particularly between Oct 1 Year “4” and Mar 31 Year “6”

The 7-8 Decline: Market often experiences a sharp decline somewhere in the Year “7” to Year “8” period

The Late Rally: Market often rallies strongly into the end of the decade.

Figure 1 – 1980-1989 (Courtesy AIQ TradingExpert)

Figure 2 – 1990-1999 (Courtesy AIQ TradingExpert)

Figure 3 – 2000-2009 (Courtesy AIQ TradingExpert)

Figure 4 – 2010-2019 (Courtesy AIQ TradingExpert)

We are now in the “Early Lull” period.  This in no way “guarantees” trouble in the stock market in the next two years.  But it does offer a strong “suggestion”, particularly when we focus only on decades since 1900 that started with an Election Year (which is where we are now) – 1900, 1920, 1940, 1960, 1980, 2000.

(See this article for a more detailed discussion)

As you can see in Figures 5 and 6, each of these 6 2.5-year decade opening periods witnessed a market decline – -14% on average and -63% cumulative.  Once again, no guarantee that 2020 into mid 2022 will show weakness, but….. the warning sign is there

Figure 5 – Dow price performance first 2.5 years of decades that open with a Presidential Election Year (1900-present)

Figure 6 – Cumulative Dow price performance first 2.5 years of decades that open with a Presidential Election Year (1900-present)

Summary

Repeating now: the trend of the stock market is presently “Up”. 

Therefore:

*The most prudent thing to do today is to avoid all of the “news generated” worry and angst and enjoy the trend. 

*The second most prudent thing to do is to acknowledge that this up trend will NOT last forever, and to prepare – at least mentally – for what you will do when that eventuality transpires, i.e., take a moment to locate the nearest exit.

Stay tuned for Part III

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 does not represent 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.

Please Take a Moment to Locate the Nearest Exit (Part I)

Well that sounds like a pretty alarming headline, doesn’t it?  But before you actually take a moment to locate the nearest exit please note the important difference between the words “Please locate the nearest exit” and “Oh My God, it’s the top, sell everything!!!”

You see the difference, right?  Good.  Let’s continue.  First, a true confession – I am not all that great at “market timing”, i.e., consistently buying at the bottom and/or selling at the top (I console myself with the knowledge that neither is anyone else).  On the other hand, I am reasonably good at identifying trends and at recognizing risk.  Fortunately, as it turns out, this can be a pretty useful skill.

So, while I may not be good at market timing, I can still make certain reasonable predictions.  Like for example, “at some point this bull market will run out of steam and now is as good a time as any to start making plans about how one will deal with this inevitable eventuality – whenever it may come”.  (Again, please notice the crucial difference between that sentence and “Oh My God, it’s the top, sell everything!!”)

First the Good News

The trend in the stock market is bullish.  Duh.  Is anyone surprised by that statement?  Again, we are talking subtleties here.  We are not talking about predictions, forecasts, projected scenarios, implications of current action for the future, etc.  We are just talking about pure trend-following and looking at the market as it is today.  Figure 1 displays the S&P 500 Index monthly since 1971 and Figure 2 displays four major indexes (Dow, S&P 500, Nasdaq 100, Russell 2000) versus their respective 200-day moving averages.

Figure 1 – S&P 500 Monthly  (Courtesy AIQ TradingExpert)

Figure 2 – Dow, S&P 500, Nasdaq 100, Russell 2000 w respective 200-day moving average (Courtesy AIQ TradingExpert)

It is impossible to look at the current status of “things” displayed in Figures 1 and 2 and state “we are in a bear market”.  The trend – at the moment – is “Up”.  The truth is that in the long run many investors would benefit from ignoring all of the day to day “predictions, forecasts, projected scenarios, implications of current action for the future, etc.” that emanates from financial news and just sticking to the rudimentary analysis just applied to Figures 1 and 2. 

In short, stop worrying and learn to love the trend. Still, no trend lasts forever, which is kind of the point of this article.

So now let’s talk about the “Bad News”.  But before we do, I want to point out the following:  the time to actually worry and/or do something regarding the Bad News will be when the price action in Figure 2 changes for the worse.  Let me spell it out as clearly and as realistically as possible. 

If (or should I say when?) the major U.S. stock indexes break below their respective 200-day moving averages (and especially if those moving average start to roll over and trend down):

*It could be a whipsaw that will be followed by another rally (sorry folks, but for the record I did mention that I am not that good at market timing and that I was going to speak as realistically as possible – and a whipsaw is always a realistic possibility when it comes to trend-following)

*It could be the beginning of a significant decline in the stock market (think -30% or possibly even much more)

So, the proper response to reading the impending discussion of the Bad News is not “I should do something”.  The proper response is “I need to resolve myself to doing something when the time comes that something truly needs to be done.”

You see the difference, right?  Good.  Let’s continue.

The Bad News

The first piece of Bad News is that stocks are overvalued.  Now that fact hardly scares anybody anymore – which actually is understandable since the stock market has technically been overvalued for some time now AND has not been officially “undervalued” since the early 1980’s.  Also, valuation is NOT a timing tool, only a perspective tool.  So high valuation levels a re pretty easy to ignore at this point.

Still, here is some “perspective” to consider:

*Recession => Economic equivalent of jumping out the window

*P/E Ratio => What floor you are on at the time you jump

Therefore:

*A high P/E ratio DOES NOT tell you WHEN a bear market will occur

*A high P/E ratio DOES WARN you that when the next bear market does occur it will be one of the painful kind (i.e., don’t say you were not warned)

Figure 3 displays the Shiller P/E Ratio plus (in red numbers) the magnitude of the bear market that followed important peaks in the Shiller P/E Ratio. 

Figure 3 – Shiller P/E Ratio Peaks (with subsequent bear market declines in red); (Courtesy: https://www.multpl.com/shiller-pe)

Repeating now: Figure 3 does not tell us that a bear market is imminent.  It does however, strongly suggest that whenever the next bear market does unfold, it will be, ahem, significant in nature.  To drive this point home, a brief history:

1929: P/E peak followed by -89% Dow decline in 3 years

1937: P/E peak followed by -49% Dow decline in 7 months(!?)

1965: P/E peak followed by 17 years of sideways price action with a -40% Dow decline along the way

2000: P/E peak followed by -83% Nasdaq 100 decline in 2 years

2007: P/E peak followed by -54% Dow decline in 17 months

Following next peak: ??

As you can see, history suggests that the next bear market – whenever it may come – will quite likely be severe.  There is actually another associated problem to consider.  Drawdowns are one thing – some investors are resolved to never try to time anything and are thus resigned to the fact that they will have to “ride ‘em out” once in awhile.  OK fine – strap yourself in and, um, enjoy the ride. But another problem associated with high valuation levels is the potential (likelihood?) for going an exceedingly long period of time without making any money at all.  Most investors have pretty much forgotten – or have never experienced – what this is like.

Figure 4 displays three such historical periods – the first associated with the 1929 peak, the second with the 1965 peak and the third with the 2000 peak. 

Figure 4 – Long sideways periods often follow high P/E ratios

*From 1927 to 1949: the stock market went sideways for 22 years.  Some random guy in 1947 – “Hey Honey, remember that money we put to work in the stock market back in 1927? Great News! We’re back to breakeven! (I can’t speak for anyone else, but personally I would prefer to avoid having THAT conversation.)

*From 1965 to 1982: the stock market went sideways.  While this is technically a 0% return over 17 years (with drawdows of -20%, -30% and -40% interspersed along the way – just to make it less boring), it was actually worse than that. Because of high inflation during this period, purchasing power declined a fairly shocking -75%. So that money you “put to work” in that S&P 500 Index fund in 1965, 17 years later had only 25% as much purchasing power (but hey, this couldn’t possibly happen again, right!?).

*From 2000 to 2012: the stock market went sideways.  With the market presently at much higher all-time highs most investors have forgotten all about this.  Still, it is interesting to note that from 8/31/2000 through 1/31/2020 (19 years and 5 months), the average annual compounded total return for the Vanguard S&P 500 Index fund (ticker VFINX) was just +5.75%.  Not exactly a stellar rate of return for almost 20 years of a “ride ’em out” in an S&P 500 Index fund approach).

The Point: When valuations are high, future long-term returns tend to be subpar – and YES, valuations are currently high.

You have been warned.

Stay tuned for Part II…

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 does not represent 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

January 14, 2020

Hello Everyone,

Market Recap:

Last year was an excellent year for the markets in general, with the markets appreciating 19-38%, depending on the indexes. One of the best sectors was the large growth sector with stocks like Apple Computer going up 88% and Microsoft up 56% over the last year. That is why the NASDAQ went up 38% This year; the market is doing the same thing with Apple +5%, Microsoft +3%, Alphabet +6%, Facebook +6%, and Amazon +3%.

When stocks are so large, and they go up a significant amount, they skew the market averages and make people think the markets are doing very well when in fact, the small and midcap stock indexes are down .5% -1.6%.

The participation of this current rally is VERY NARROW, meaning just a small number of large stocks are pushing this market higher and when the markets are climbing on only a few stocks then either the small and midcap stocks have to catch up or the large growth and technology stocks have to fade.

On my December Bartometer, I thought the market would rally towards the rest of the year and I thought the FIRST level of resistance would be 3280 on the S&P 500. Friday, the S&P 500 hit 3281 intraday high and closed at 3265. Even though I am still Bullish longer term, I think the markets require some healthy pullback… Going up without a correction is not suitable for the markets especially when people are now throwing money at the market. It’s called FOMO, or the Fear of Missing Out. This sort of panic to throw money at the index funds shows me that psychologically people think the markets will continue to rise. That scares me a little.

The rise might continue and I am still relatively bullish as I think the S&P could hit 3400 later in the year, but I am worried that one of the only sectors that are moving is the large-cap technology sector. At this point, if you are in or nearing retirement and have more than 65% of your money in equities, you may want to scale back your equity exposure to below that amount. Remember the old saying; you don’t make it until you take it.

An excerpt from Fundamental Economist Dr. Robert Genetski: from Classical Principles.com:


Another week of good news and another week of record-high prices for the major stock indexes. Technology remains the most robust sector with both the Nasdaq and Nasdaq 100 gaining more than a percent. The S&P500 and Dow were up ½%. Small caps continue to languish.

Trump’s strategy in dealing with Iran increases the odds of his reelection. Iran looks even less competent for failing to protect Soleimani, having more than 50 people trampled to death at his funeral, and then possibly shooting down their civilian airplane.

With central banks around the world, creating liquidity, any correction in the bull market should be limited. Stay bullish on stocks.

Some of the INDEXES of the markets both equities and interest rates are below.

The source is Morningstar.com up until January 10th, 2020.


Dow Jones +1.1%
S&P 500 +1.2%
NASDAQ Aggressive growth +2.7%
I Shares Russell 2000 ETF (IWM) Small cap – .47 of 1%
Midcap stock funds -.48 of 1%
International Index (MSCI – EAFE ex USA 1.0% Moderate Mutual Fund Investment Grade Bonds (AAA) Long duration +.56 of 1%
High Yield Merrill Lynch High Yield Index +.46 of 1%
Short Term Bond +.22 of 1%
Fixed Bond Yields (10 year) +1.8.% Yield
The average Moderate Fund is up .62 of 1% this year fully invested as a 65% in stocks and 35% in bonds and nothing in the money market.

Interest rates look stable going forward over the next 6 months

The Dow Jones Average is above. This index for the 5 largest stocks are Boeing, Apple, United healthcare, Goldman Sachs and Home Depot. They are the mix of American industry, but only contain 30 stocks. Even though the Dow is rising,

Look to the 3 graphs below the chart. You will see the horizontal blue line. When that is over 88 as it is, it shows that the market is OVERBOUGHT. Then when the green line falls below the green line you see the market selling off. It is there again, so be careful. The second graph shows Money flow/ Volume Accumulation. When this goes negative like it is below zero or the horizontal line, it shows that there is some distribution or selling pressure.

The last graph shows the Advance decline line. This is the number of stocks going up compared to the number of stocks going down on a running total. As you can see the Dow Jones is going up, but the Advance/decline is going DOWN. This means only a few stocks are going up. If this doesn’t change, the market could be ready for a little decline There is trend-line support at 28400 if it drops there. But unless the indicators change for the better, the market may fall and correct somewhat.

The NASDAQ is above. As you can see the NASDAQ is going up and is at the upper part of channel with-overbought and oversold indicators like the SK-SD stochastic indicators (the first graph) are very overbought. When the horizontal blue line is above 88 where the indicators are currently the market is overbought. Many times, when this indicator is above 88 you will see some sort of a correction or a give back.

See the last three times this indicator hit this level and crossed below it, the market fell. The NASDAQ can fall to the 8900 level where the bold trend line is above and still be bullish. It’s when we break that dark blue trend-line, then I will get very Cautious. Right now, the NASDAQ is overbought, and there are only a few stocks pushing this market higher. The third graph is the Advance decline Line. Notice, as the NASDAQ is going higher, it is going higher on a few stocks, that is why the Advance Decline Line is falling.

What is the Advance-Decline Line?

The advance/decline line (A/D) is a technical indicator that plots the difference between the number of advancing and declining stocks daily. The indicator is cumulative, with a positive number being added to the prior number, or if the number is negative, it is subtracted from the prior number.

The A/D line is used to show market sentiment, as it tells traders whether more stocks are rising or falling. It is used to confirm price trends in major indexes, and can also warn of reversals when divergence occurs.

The on-balance volume (OBV) is a technical analysis indicator intended to relate price and volume in the stock market. OBV is based on a cumulative total volume.[1] Money flow is calculated by averaging the high, low and closing prices, and multiplying by the daily volume. Comparing that result with the number for the previous day tells traders whether money flow was positive or negative for the current day. Positive money flow indicates that prices are likely to move higher, while negative money flow suggests prices are about to fall.

Source: Investopedia

A Support or support level is the level at which buyers tend to purchase or into a stock or index. It refers to the stock share price that a company or index should hold and start to rise. When the price of the stock falls towards its support level, the support level holds and is confirmed, or the stock continues to decline, and the support level must change.

  • Support levels on the S&P 500 area are 3248, 3217 area MAJOR Trend line support, 3182, 3119, and 3088. These might be BUY areas.
  • Support levels on the NASDAQ are 8900, 8655, and 8474.
  • On the Dow Jones support is at 28,420, 28245, 26093 (200-day moving average) and 27764
  • These may be safer areas to get into the equity markets on support levels slowly.
  • RESISTANCE LEVEL ON THE S&P 500 3280.

THE BOTTOM LINE:

The market is somewhat overbought and at FAIR VALUE. There are now some cracks in the dam showing as explained above, but my computer systems are still at a Hold for the market direction. I expected the S&P to hit 3280, it did last week and sold off very quickly to the 2165 area. The markets are rallying on large-cap growth and technology stocks and watching the other smaller to midcap companies decline. Either we start to see the small and midcap stocks begin to rally, or the market could begin to decline. The S&P could hit 3280 to 3400 later in the year. Earnings could potentially grow 6 to 7% or more this year and that is why there is the possibility that the S&P 500 could reach 3280 to 3400+ in 2020, a much smaller rise in the stock market than in 2019 but hopefully, a decent return, with obviously no guarantees expressed or implied.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative
5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408

SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.

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.
Money Flow; The Money Flow Index (MFI) is a momentum indicator that measures the flow of money into and out of a security over a specified period. It is related to the Relative Strength Index (RSI) but incorporates volume, whereas the RSI only considers SK-SD Stochastics. When an oversold stochastic moves up through its MA, a buy signal is produced. Furthermore, Lane recommends that the stochastic line be smoothed twice with three-period simple moving averages: SK is the three-period simple moving average of K, and SD is the three-period simple moving average of SK

Rising Wedge; A rising wedge is a technical indicator, suggesting a reversal pattern frequently seen in bear markets. This pattern shows up in charts when the price moves upward with pivot highs and lows converging toward a single point known as the apex

How Do You Handle a Problem Like October?

OK, so this particular piece clearly does NOT qualify as “timely”.  Hey, they can’t all be “time critical, table-pounding, you must act now” missives.  In any event, as part of a larger project regarding trends and seasonality in the market, I figured something out – we “quantitative analyst types” refer to this as “progress.”

So here goes.

The Month of October in the Stock Market

The month of October in the stock market is something of a paradox.  Many investors refer to it as “Crash Month” – which is understandable given the action in 1929, 1978, 1979, 1987, 1997, 2008 and 2018.  Yet others refer to it as the “Bear Killer” month since a number of bear market declines have bottomed out and/r reversed during October.  Further complicating matters is that October has showed:

*A gain 61% of the time

*An average monthly gain of +0.95%

*A median monthly gain of +1.18%

Figure 1 displays the monthly price return for the S&P 500 Index during every October starting in 1945.

Figure 1 – S&P 500 Index October Monthly % +(-)

Figure 2 displays the cumulative % price gain achieved by holding the S&P 500 Index ONLY during the month of October every year starting in 1945.

Figure 2 – S&P 500 Index Cumulative October % +(-)

So, you see the paradox.  To simply sit out the market every October means giving up a fair amount of return over time (not to mention the logistical and tax implications of “selling everything” on Sep 30 and buying back in on Oct 31).  At the same time, October can be a helluva scary place to be from time to time. 

One Possible Solution – The Decennial Pattern

In my book “Seasonal Stock Market Trends” I have a section that talks about the action of the stock market across the average decade. The first year (ex., 2010) is Year “0”, the second year (ex., 2011) is Year “1”, etc.

In a nutshell, there tends to be:

The Early Lull: Often there is weakness starting in Year “0” into mid Year “2”

The Mid-Decade Rally: Particularly strong during late Year “4” into early Year “6”

The 7-8-9 Decline: Often there is a significant pullback somewhere in the during Years “7” or “8” or “9”

The Late Rally: Decades often end with great strength

Figures 3 and 4 display this pattern over the past two decades.

Figure 3 – Decennial Pattern: 2010-2019

Figure 4 – Decennial Pattern: 2000-2009

Focusing on October 

So now let’s look at October performance based on the Year of the Decade.  The results appear in Figure 5.  To be clear, Year 0 cumulates the October % +(-) for the S&P 500 Index during 1950, 1960, 1970, etc.  Year 9 cumulates the October % +(-) for the S&P 500 index during 1949, 1959, 1969, 1979, etc.

Figure 5 – October S&P 500 Index cumulative % +(-) by Year of Decade

What we see is that – apparently – much of the “7-8-9 Decline” takes place in October, as Years “7” and “8” of the decade are the only ones that show a net loss for October.

Let’s highlight this another way.  Figure 6 displays the cumulative % return for the S&P 500 Index during October during all years EXCEPT those ending “7” or “8” versus the cumulative % return for the S&P 500 Index during October during ONLY years ending in “7” or “8”.

Figure 6 – S&P 500 cumulative October % +(-); Years 7 and 8 of decade versus All Other Years of Decade

For the record:

*October during Years “7” and “8” lost -39%

*October during all other Years gained +196%

Summary

So, does this mean that October is now “green-lighted” as bullish until 2027?  Not necessarily.  As always, that pesky “past performance is no guarantee of future results” phrase looms large. 

But for an investor looking to maximize long-term profits while also attempting to avoid potential pain along the way, the October 7-8 pattern is something to file away for future reference.

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 does not represent 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.

Bartometer November 11, 2019

Hello Everyone,

Market Recap:

On my last Bartometer I stated that we were #1 On Buy signal, #2 the Dow Jones and the stock market had Bullish Ascending triangles patterns, #3. Money flow and On Balance Volume were breaking out to NEW HIGHS when the stock market wasn’t. This shows demand for stocks over and above the price. These 3 indicators were telling me and I was telling you that I thought the market would breakout to new highs, AND IT DID. The stock market broke out of the bullish ascending triangle, (see index on the next page about ascending triangles)*. On the S&P I said that it had to breakout of 3030 and it did. It is now 3093. I said the Dow Jones had to breakout of the 27400, and it did. It is now 27681.

Where does is go from here and could we get a little pull back?

See chart below for an explanation.

An excerpt from Fundamental Economist Dr. Robert Genetski: from Classical Principles.com:

Stocks benefited from encouraging news of a potential trade agreement between the US and China as well as some good news on the economy. Markets seldom move in only one direction. The S&P500 is now within 3% of its fundamental value. A pause or even a slight correction is overdue, particularly if there is any negative news. Even so, with stronger fundamentals and the Fed purchasing securities, any correction should be fairly mild. Stay bullish on stocks.

Adding to Bob’s his Comment:

Signs of strength in the economy combined with gains in stock prices led to a sharp jump in intermediate and longer-term interest rates. This week the interest rate on 10-year T-Notes moved 25 basis points higher. The latest moves turned the yield curve to a more normal shape. As with stocks, interest rates have spiked higher and are overdue for some correction. However, after more than a decade of interest rates declining and being well below their fundamental levels, rates remain 200 basis points below fundamental levels. While the Fed’s low target places a limit on how high interest rates will go, there is still a lot of upward potential for longer-term rates. Fixed-income portfolios should remain defensive.

On the Technical Side:

Over the last almost 22 months, the Dow Jones FINALLY broke out to new highs from the old highs set on Jan 31, 2018 at 26,714. That is a POSITIVE. Money Flow and On Balance Volume are still at a new high, but the markets are again becoming overbought. So, could the market comes down a little now? YES, the markets are now overbought and there could easily be a slight decline to 27191 to 27298, a decline of around 2%, and the S&P to decline to 3029 area, a decline of 2% or so, BUT no more than that, because if the markets GO BACK BELOW THE BREAKOUT it can cause traders to start selling in mass. So look for a possible test of the breakout, but IF the markets close below the breakout of 27300 to 27384 on the Dow Jones or 3030 on the S&P convincingly, then I will be getting Very Cautious. If that doesn’t happen then I am still moderately bullish. But I realize the market are now OVERBOUGHT and in my opinion, it is not a time to go out and invest a lot of money in the markets. Dollar cost averaging is fine. I stated in my January Bartometer that I thought the S&P could reach 3130 to 3180+ this year. At 3093 currently, that is about 1-3% from here.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until November 9th, 2019. These are passive indexes.
*Dow Jones +20%
S&P 500 +24%
NASDAQ Aggressive growth +31%
I Shares Russell 2000 ETF (IWM) Small cap +19%
International Index (MSCI – EAFE ex USA) +16%
Moderate Mutual Fund +14%
Investment Grade Bonds (AAA) +13%
High Yield Merrill Lynch High Yield Index +11%
Floating Rate Bond Index +4.0%
Short Term Bond +4.0%
Fixed Bond Yields (10 year) +1.75.% Yield


The average Moderate Fund is up 14% this year fully invested as a 60% in stocks and 40% in bonds and nothing in the money market.

S&P 500

Ascending Triangle is above, and is Bullish as long as it stays above the breakout of 3027-3030

The S&P 500 is above. The S&P 500 contains 500 of the largest companies in the US. The 2 top companies by market value are Microsoft and Apple. But there are 498 other stocks in it. If you can see above the ASCENDING TRIANGLE that is BOLDED. Notice the clear breakout to new highs. This is clearly BULLISH like I thought would happen last month. And it did. Now that it has risen 2% ABOVE the breakout, a BREAKDOWN below the 3030 convincingly would get me VERY Cautious. It is normal to come back down to test the breakout, but not to break down below it. So if you see the S&P close below 3030 convincingly on heavy volume, I will be getting Cautious to Very Cautious depending on the reason. But the market is now at fair value to me and there may be another 1-4% more for the year in my opinion, but not much more unless there is incredible news from the Political or Tariff front. It is not a great time to go out and buy a lot in the stock market in my opinion as well.

The Middle graph is called the SK-SD Stochastics model. It shows the markets as being overbought when the indicator is above 88 where it is above the 88 horizontal line. Notice every time the indicator was above 88 it seemed to peak out and sell off. This is not guaranteed but it is good indicator.

The 3rd indicator is MACD or Momentum this indicator is still bullish until the pink line breaks down below the blue line. As of right now, momentum is still higher, but the markets are over bought, so be careful.

An ascending triangle is a chart pattern used in technical analysis. It is created by price moves that allow for a horizontal line to be drawn along the swing highs, and a rising trend line to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns.

See the pattern above? It’s an Ascending triangle. Ascending triangles are BULLISH as long as they don’t go back below the breakout. If this is a successful Ascending triangle the S&P can rise to 3130-3180 first and possibly higher IF the breakout isn’t broken convincingly on the downside or breaking and closing below 3030.

On-balance volume (OBV) is a technical analysis indicator intended to relate price and volume in the stock market. OBV is based on a cumulative total volume.

Money flow is calculated by averaging the high, low and closing prices, and multiplying by the daily volume. Comparing that result with the number for the previous day tells traders whether money flow was positive or negative for the current day. Positive money flow indicates that prices are likely to move higher, while negative money flow suggests prices are about to fall.

A Support or support level is the level at which buyers tend to purchase or into a stock or index. It refers to the stock share price that a company or index should hold and start to rise. When the price of the stock falls towards its support level, the support level holds and is confirmed, or the stock continues to decline, and the support level must change.

  • Support levels on the S&P 500 area are 3027-3030, 3017, 2952, 2922, and 2812. These might be BUY areas.
  • Support levels on the NASDAQ are 8251, 8144, 8080 and 7771.
  • On the Dow Jones support is at 26,285, 25,763, and 25,458
  • These may be safer areas to get into the equity markets on support levels slowly.
  • RESISTANCE LEVEL ON THE S&P 500 IS 3130 and the Dow Jones breakout is 27,400. If there is a favorable tariff settlement, the market should rise short term.

THE BOTTOM LINE:

The Dow, the S&P 500 and the NASDAQ are at new highs after rallying over the last 3 weeks. Normally the markets after reaching new highs become overbought and may come back down towards the breakout areas to see if the breakouts area holds. lf breakout of 3030 are holds then the markets tend to drift back towards the old high to see if it can break out again. If it does then 3130 to 3180 could be the next target. If 3030 doesn’t hold on the S&P and starts to break down below 3030 then I will be getting cautious or very cautious.. I WILL CONTINUE TO ANALYZE THE TECHNICALS OF THE MARKET. The seasonal patterns of the markets are bullish towards the end of the year. Last year the markets fell in December. It looks like the market still wants to go up, but with tweets coming out hourly, market timing will be more difficult.

Best to all of you,

Joe Bartosiewicz, CFP®

Investment Advisor Representative
5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408

SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.

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.

Yes, the Stock Market is at a Critical Juncture (and What to Do About It)

As usual, you can pretty much see whatever you want to see in today’s stock market.  Consider the major indexes in Figure 1, displayed along with their respective 200-day moving averages.

Figure 1 – Major Indexes (Courtesy AIQ TradingExpert)

If you “want to” be bullish, you can focus on the fact that all 4 of these major indexes are presently above their respective 200-day moving averages.  This essentially defines an “uptrend”; hence you can make a bullish argument.

If you want to be “bearish”, you can focus on the “choppy” nature of the market’s performance and the fact that very little headway has been made since the highs in early 2018.  This “looks like” a classic “topping pattern” (i.e., a lot of “churning”), hence you can make a bearish argument.

To add more intrigue, consider the 4 “market bellwethers” displayed in Figure 2.

Figure 2 – Jay’s Market Bellwethers (Courtesy AIQ TradingExpert)

(NOTE: Previously I had Sotheby’s Holdings – ticker BID – as one my bellwethers.  As they are being bought out, I have replaced it with the Value Line Arithmetic Index, which has a history of topping and bottoming prior to the major indexes)

The action here is much more mixed and muddled.

*SMH – for any “early warning” sign keep a close eye on the semiconductors.  If they breakout to a new high they could lead the overall market higher. If they breakdown from a double top the market will likely be spooked.

*TRAN – The Dow Transports topped out over a year ago and have been flopping around aimlessly in a narrowing range.  Not exactly a bullish sign, but deemed OK as long as price holds above the 200-day moving average.

*ZIV – Inverse VIX is presently below it’s 200-day moving average, so this one qualifies as “bearish” at the moment.

*VAL-I – The Value Line Index is comprised of 1,675 stocks and gives each stock equal weight, so is a good measure of the “overall” market.  It presently sits right at its 200-day moving average, however – as you can see in Figure 3 – it is presently telling a different story than the S&P 500 Index.

Figure 3 – S&P 500 trending slightly higher, Value Line unweighted index trending lower (Courtesy AIQ TradingExpert)

The Bottom Line

OK, now here is where a skilled market analyst would launch into an argument regarding which side will actually “win”, accompanied by roughly 5 to 50 “compelling charts” that “clearly show” why the analysts’ said opinion was sure to work out correctly.  Alas, there is no one here like that. 

If the question is, “will the stock market break out to the upside and run to sharply higher new highs or will it break down without breaking out to new highs?”, I sadly must default to my standard answer of, “It beats me.”

Here is what I can tell you though.  Instead of relying on “somebody’s opinion or prediction” a much better bet is to formulate and follow an investment plan that spells out:

*What you will (and will not) invest in?

*How much capital you will allocate to each position?

*How much risk you are willing to take with each position?

*What will cause you to exit with a profit?

*What will cause you to exit with a loss?

*Will you have some overarching “trigger” to cause you to reduce overall exposure?

*And so on and so forth

If you have specific answers for the questions above (you DO have specific answers, don’t you?) then the correct thing to do is to go ahead and follow your plan and ignore the myriad prognostications that attempt to sway you one way or the other.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data 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.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

The Bartometer September, 2019

Hello Everyone,

Over the last month the S&P 500 has risen 3% and is about 2/3rds of 1% below its high it reached in July. Last month on the Bartometer I stated that my computer models were on a Short term Buy signal and the S&P needed to break out of 2944- 2954 for me to be more bullish. I also said that if the S&P stayed above 2954 for 2 days it should head back to the old high of 3025 or there about and it did. Now that the markets are near their old high, where do I think the markets will go? Well, the answer isn’t so easy to answer. Technically the markets are overbought again but two of the technical indicators that show continuation on are On Balance Volume and Money Flow. Both of these indicators are currently at a New High, when the markets are not. These indicators while not always indicative of further advancement are still positive for a continuation to the upside. See the charts below.

My fundamental economist Dr. Robert Genetski, from ClassicalPrinciples.com said last week’s move by the European Central Bank (ECB) to ease policy is good news for the period immediately ahead. The ECB cut its target interest rate and will indefinitely purchase $20 billion of securities each month beginning in November. The move pressures the Fed and other central banks to also ease policy. Negotiations with China also appear to be moving in a positive direction. China is suffering much more than the US from Trump’s tariffs. China is anxious to reach a deal to avoid further problems. On Wednesday the Fed will follow the ECB and the Bank of Japan (BOJ) by cutting interest rates. Unlike the ECB and BOJ, the Fed will not resume purchases of securities. Hence, the Fed will not be easing policy. However, the perception of a period of global easing is likely to provide a short-term tailwind for boosting stocks and interest rates. Over the past 2 weeks there has been a 30 basis point increase in the yield on 10-year T-Notes. This has narrowed the inversion with 3-month Treasury bills from 50 basis points to 20. The spike in rates means financial markets reflect the view that monetary policy is less restrictive. This view is reinforced by the actions of the EC.

On the Technical Side

My computer models went on a very short term BUY signal 5 weeks ago when the S&P was 2844 and has not gone to a Sell signal, but there needs to now be a push through the 3027 level on the S&P and stay there or there could be a sell off here. Two of my favorite indicators Money Flow and On Balance Volume are at a new high while the index is not. This is a positive indication for continuation on the upside. But remember, we still need to watch all of the information that is coming out of the mouth of all political figures and the global markets, but currently I am still moderately bullish. I never put my guard down. See chart below

Interest Outlook

I see the Federal Reserve reducing interest rates ¼% in December.

Some of the INDEXES of the markets both equities and interest rates are below. The source is Morningstar.com up until September 13th, 2019.

These are passive indexes.

*Dow Jones +18%

S&P 500 +21%

NASDAQ Aggressive growth +25%

I Shares Russell 2000 ETF (IWM) Small cap +18%

International Index (MSCI – EAFE ex USA) +13%

Moderate Mutual Fund +12%

Investment Grade Bonds (AAA) +11% +2.64%

High Yield Merrill Lynch High Yield Index +9% +4.26%

Floating Rate Bond Index +5% +2.60%

Short Term Bond +3%

Fixed Bond Yields (10 year) +1.82.% +2.63%

The average Moderate Fund is up 12% this year fully invested as a 60% in stocks and 40% in bonds. And nothing in the money market

*Explanation of each below

The Dow Jones Index is above. As it contains 30 of the largest industrial and American stocks. You will notice that the Dow above and to the right is approaching its old high achieved in July. It has rallied 5% since the Buy signal my computer models gave last month. But now it has to break out to new highs or it puts in a double top. There are 3 indicators above that are important. The first one is SK-SD Stochastics and it is back to the 88 level and that shows the market is overbought. The 2nd and third are Money Flow and On Balance Volume. Both of those indicators are very important for me to determine confirmation and continuation of the rally. Notice that both of them are at a new high while the Dow Jones is not. This is a positive divergence and hopefully the markets will continue its upward movement. I like the USA markets more than the International markets. The Dow Jones looks better than the S&P and the NASDAQ technically at this time. Remember, volatility will still be present so I would still be somewhat cautious.

Source: AIQ Systems on graphs

*On-balance volume (OBV) is a technical analysis indicator intended to relate price and volume in the stock market.
OBV is based on a cumulative total volume.[1]
*Money flow is calculated by averaging the high, low and closing prices, and multiplying by the daily volume. Comparing that result with the number for the previous day tells traders whether money flow was positive or negative for the current day. Positive money flow indicates that prices are likely to move higher, while negative money flow suggests prices are about to fall.

Source: Investopedia

*A Support or support level is the level at which buyers tend to purchase or into a stock or index. It refers to the stock share price that a company or index should hold and start to rise. When a price of the stock falls towards its support level, the support level holds and is confirmed, or the stock continues to decline, and the support level must change.

  • Support levels on the S&P 500 area are 2954.71, 2950, 2944, and 2931. These might be BUY areas.
  • Support levels on the NASDAQ are 8024, 7969, and 7777 (200 Day Moving Average.
  • On the Dow Jones support is at 26,766, 26,595, and 26,368
  • These may be safer areas to get into the equity markets on support levels slowly.
  • RESISTANCE LEVEL ON THE S&P 500 IS 3028. If there is a favorable tariff settlement, the market should rise short term.

THE BOTTOM LINE:

The Dow, the S&P 500 and the NASDAQ are all near new highs. 5 weeks ago on the Bartometer my computer models went to a Buy signal. Since then, the markets have rallied near their old highs. There are technical patterns that show the markets could breakout to new highs but IF THE MARKETS DON’T BREAKOUT OUT SOON, THE MARKETS COULD TOP OUT. I WILL CONTINUE TO ANALYZE THE TECHNICALs OF THE MARKET. There are seasonal patterns that are usually week. September and October ARE NOT SEASONALLY GOOD MONTHS. It looks like the market wants to goes up but with tweets coming out hourly, market timing will be more difficult. If things come in as Trump expects, watch for a solid rally possibly to the old highs. But there are headwinds currently short term.

Best to all of you,

Joe Bartosiewicz, CFP®
Investment Advisor Representative

5 Colby Way
Avon, CT 06001
860-940-7020 or 860-404-0408

SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SAGE POINT FINANCIAL INC., MEMBER FINRA/SIPC, AND SEC-REGISTERED INVESTMENT ADVISOR.
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, and 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 indifferent 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.