Stock Markets are Sliding

It looks like today (Thursday) the S&P-500 will open below where it started 2018. It was just a couple of months ago that “everyone” saw nothing but upside to the stock market and the real estate market … apparently too willing to forget 2006-2008, just 10 years ago.

I don’t know if this is the beginning of the big bear market or another scare. I have learned to stick to my methodology pretty closely and respond to what the market is doing right now, rather than try to predict the future.

We still hold over 50% of our non-speculative accounts in cash because of the increased risk. No need for any changes at this time.


Markets Are Taking a Breather Thursday

Yesterday the stock markets had a great day on the heels of the mid-term election results. Perhaps with the Republicans controlling the senate and the Democrats controlling the House of Representatives, the markets expect some stability (i.e. gridlock) for awhile.

Whatever the reason, we had a great rally yesterday, with all classes being at least slightly up for the day. Today, things are quiet without much movement either way as of 12:34 Central.

No portfolio changes for us.


Fourth Asset Class Enters Downtrend

As of Monday, November 5, 2018,  US Small Company Stocks entered a downtrend, joining Gold, International Stocks and US TIPs. Based on the methodology, this causes us to reduce risk by investing only 50% of our portfolios as shown below. Over to the right, you can see our new allocations along with the 2018 year to date performance of each asset class. The S&P-500, US Large Stocks, is the only asset class still in an uptrend.

Number of Asset Class Downtrends% Invested

You might wonder what happens when all five asset classes are trending down. Well, this rarely happens, and rarely lasts for long when it does occur, so we just ride this situation out. There is a big difference between managing risk and trying to time when to jump in and out of the market. We don’t advise jumping in and out and we don’t try it ourselves.

If you look at the asset allocation closely, you will see that we actually have more than 50% in cash. Hmmm, you may wonder, why is that? Well, if an asset class is trending up AND is fluctuating MORE now than it has in the last year, well, you guessed it, we reduce that position by 25% of the calculated value to manage risk even further until volatility decreases. The S&P-500 is doing that now.

The big picture looks very risky right now, so our model has us at almost maximum cash. If you are watching your own nest egg take a hit right now, you might want to check with your broker/representative about reducing risk.


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.


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.


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.


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).


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.


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.