Last week, I noticed that gold looked like it was entering a downtrend and would be reduced based on our dynamic asset allocation model. Sure enough, gold is trending down slightly and receives a smaller allocation, as of yesterday.
However, to my surprise, Monday’s asset allocation model showed an increase in the allocation to U.S. small cap stocks because that trend has turned positive. Accordingly, we have reduced gold and increased U.S. Small Cap stocks.
Hope you are having a fantastic Tuesday!
I have followed Bob Lotich for six years or so, and have come to respect his example and the great blog and courses he offers his readers. I liked this particular blog post so much I wanted to share it with my readers.
I hope you find it useful and thought provoking!
I’m seeing indications that gold will be in a downtrend by this coming Monday, joining US Stocks, International Stocks and Bonds. I don’t recall seeing ALL of our asset classes in downtrends more than once before. This is not a good thing for portfolios. It basically means that many investors are raising cash, and we should too.
We are already at 15% cash in our diversified portfolios. That cash position will be increasing to 50% on Monday if, indeed, gold’s linear regression slope is negative over the last six months or so.
Risk, both in terms of volatility and trend, is increasing.
As of Monday, 5/21/18, the medium-term trend turned down for Small Cap US Stocks.
Now, the only asset class in our portfolio in an uptrend is gold (GLD or SGOL). All bond classes and all stock classes are trending down.
Accordingly, I reduced stock holdings, increased gold holdings, and increased cash to 15% of our portfolios. (For my diversified clients, we continue to hold a 5% position in the gold miner ETF, GDX). For my speculative clients, we are primarily in precious metals, buying on dips and selling on rallies around the core positions.
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Precious metals are getting killed on this Tuesday, May 15. All of the other major asset classes are down also, as of this writing.
It seems that a sell-off in bonds, raising the yield on the 10 Year Treasury above 3%, is the catalyst for today’s action. What is interesting to me is that when bonds sell off, I would expect gold and silver to be steady or up, but that is not the case. The last time I looked, gold was down $20/oz. and had broken below $1,300/oz. for the first time in ages.
US large cap stocks and international stocks are already in an intermediate negative trend, as are US Treasuries. US small cap stocks and gold are still positive based on the linear regression of prices the last six months or so.
Time to stay alert. Have a good day!
President Trump just showed Iran a big stick and a little carrot.
As of this writing just a few minutes after his speech, gold and commodities are up slightly while stocks remain about where they were just before the announcement.
In summary, there is not a great deal of reaction to the news initially.
However, yesterday, our allocation model changed our asset allocations, decreasing international stocks and large cap US stocks while increasing small cap US stocks and gold.
As of this writing on Thursday morning, the SPY is trading at 259.23. The closing low for 2018 was at 257.63, less than 1% away.
Gold and bonds are up, so our portfolios are actually gaining today, While the S&P 500 is down 1.5% since yesterday’s close.
No changes to our asset allocations since March.
Yuck. The financial markets look ugly today. All major asset classes are down, with stocks and gold leading the way lower. US Treasuries and TIPs are also down.
My blog entry from last week about paying the piper is still on my mind today. The longer we meander sideways without a convincing move back to January’s highs, the more pessimistic I will become.
Whatever the future holds, our asset allocation remains the same for now, having adjusted to the volatility increase in January.