Volatility is Back!

This week we saw a decent bounce in stocks on Wednesday and Thursday after a painful sell-off. However, today (Friday) we gave back most of yesterday’s gains.

Thankfully, we still hold a lot of cash (check out the allocation provided on our home page), and gold is holding its own also. There is no need for us to take any new action right now. We just need to wait for a new direction to emerge. As long as volatility remains high, we’ll continue to play defense.

Have a great weekend.

Ugly Start to Friday

Wow! After yesterday’s bounce, many people were beginning to feel better after Wednesday’s huge down day. But at this writing, 9:51 AM Central, the S&P-500 is down about 2.4% from yesterday’s close. This is well below where we closed the day on Wednesday.

Once again, the miners, the metals (gold and silver) and bonds are up, mitigating the losses from stocks. Also, thankfully, we went into this situation with 43% cash for our clients with balanced portfolios.

The speculative clients have much higher allocations to gold, silver and the miners, so those accounts are doing well today… creeping closer and closer to turning positive. This is starting to look like a Bona fide crash to me.

Please be careful out there. US stocks are now solidly negative for 2018.

Dale

Stocks are Falling Tuesday Morning

Well, I wrote last week that I expected US stocks to test the lows from October 11, 2018 last Friday. My timing was off. This morning, Tuesday, 10/23/18, the S&P-500 is down 1.5% just after the open. International stocks are worse. This “breaks” below the lows from 10/11 and if the “test” is passed, stocks will pop above those lows today and, perhaps, bounce up for a week or so. On the other hand, if this “test” level fails to hold, sentiment could get ugly and lead to a stock market crash. It will be interesting to see.

Lo and behold, gold, US treasuries and the miners are rallying strongly. People who got frustrated with their diversified portfolios and envied those who were “all in” on stocks should be feeling a lot better this month. We are barely above water for 2018 in US stocks right now.

Exciting times are ahead for the next few months, I believe.

Cheers.

Will we Test Last Week’s Lows Tomorrow?

Last week, stocks had the really big down day we all heard about. This last Tuesday, we saw the S&P-500 stocks have a nice 1.6% rally. However, today, it looks like those gains are going away … at this writing (2 PM Central), the S&P-500 is down 1.3% or so.

I expect that we will retest last week’s lows tomorrow, unless there is a big rally in the last hour of trading today. Either way, we are content to hold 43% cash in our conservative asset allocations.

Take care to manage your risk.

Thanks.

Selling at the Close on Monday

All day, gold and the miners were up by varying amounts, while US stocks moved down then up while staying close to even on the day.

Then, during the last 15-20 minutes of trading, the S&P-500 dropped about 0.5% to close the day.

Earlier in the day, based on the increased volatility in US stocks last week, we raised more cash, now around 43% (from 35% last week).

For our speculative clients, we have appreciated the short covering in gold, silver and the miners. It’s been a nice shot in the arm. However, this long-term bet on a new bull-market in these assets is still under water and has quite a ways to go yet. We are still holding those assets for the speculative accounts (including my own).

Cheers.

Stocks Hit an Air Pocket on Wednesday!

Well, I wasn’t surprised that stocks were down yesterday after breaking below January 2018’s highs, BUT I was surprised at how big the drop was. I think the S&P-500 was down more than 4%, if my memory serves.

Increased volatility means greater risk to most investors, except those like Warren Buffet who bought so advantageously that they don’t really care. For our methodology, however, this will likely mean that we reduce our allocation to the S&P-500 early next week. Our methodology does not purport to predict the future; it allocates among asset classes based on recent market behavior.

Fortunately, we went into yesterday with 35% of our model in cash. Our  gold, miners, and US TIP’s were either up or flat on the day, so we were not badly hurt.

I’ll be very interested to see if stocks hold here while people sort things out, or continue the crash behavior that occurred yesterday.

Cheers.

Test of the Previous Highs for Stocks

About a month ago, the S&P500 broke through the previous all-time highs and kept going up. Today, we see we are hovering just above that breakthrough level after pulling back some.

If we break back below the previous highs from January, 2018, there will be greater risk of a change in market psychology. I think the next couple of weeks will be key.

Bonds have already cracked, with TIP’s values dropping below their lows seen at the end of 2016 and beginning of 2017. With bond values dropping (and yields increasing), risk averse investors will soon pull money from stocks to lock in reasonable “guaranteed” returns.

Our methodology looks at the volatility of different asset classes as an indicator of risk in those assets. Bonds, Small Cap US stocks, and International Stocks are all very volatile (risky) relative to their behavior over the last year or so.

As we have already done, it is probably time for investors to raise cash by pulling money from International stocks, small cap stocks and bond funds. Individual bonds of high quality, held to maturity will be more and more attractive as interest rates rise.

Cheers.

 

We Have Upgraded Our Web Hosting Service

Apologies if you have not been able to reach portfoliowisdom.com for the last 2-3 days. We have upgraded our web hosting service and you should expect much better response time.

Thanks for being part of the Portfolio Wisdom community!

Dale

Ugly Day to Start September 2018

Every asset class in our model allocation is down today. Not a good sign. It makes me grateful we are holding 35% in cash for our conservative portfolio allocation (on the home page of portfoliowisdom.com).

Increasing volatility is one danger sign for asset classes that have been rising for months or years. Another danger sign is the increase of correlation between different asset classes… when all asset classes move up or down together.

One term, “melt up” is used when all asset classes are rising together. This happens when “everyone” is fleeing cash and trying to add risk assets to their portfolio. This can happen after a market crash, when the smart money starts to buy in… OR, more often, this can happen as the last blow-off at the end of a long bull market when the very last buyers can’t fight their greed and jump in. When this happens, it can be good to raise some cash … take some profits off the table.

Another term, “crash”, is used when all asset classes are falling together. Today is like that. If this continues for the week, it could mean trouble. Thankfully, we raised 35% cash for our managed portfolio clients a month or so ago.

Time will tell, although September is historically bad for US stocks.

Cheers.