2018 YTD Performance Update:
DD TRADING Model: +3.2%
DD LEADERS MOdel: +2.8%
S&P 500: +2.6%
The State of the Market:
With the S&P 500 up 2.6% so far in 2018, it appears that, barring an unforeseen disaster today, the market will wind up with a gain for the first five trading days of the new year. And as the saying goes, "As the first five days of the year go, so goes the month." From there, another famous Wall Street-ism suggests, "As January goes, so goes the year." So, using these clichés as our guide, unless the bears can really find something to get excited about in the next 6.5 hours, it would appear that investors can position portfolios long the stock market and call it good for the year, right!
In my humble opinion, what we are seeing here is a classic melt-up. It's a new year and with the macro factors (economy, inflation, rates, fed, earnings, valuation) still favoring stocks, anyone positioning accounts for the long-term appears to be putting money to work. And this is part of the reason that January tends to be one of the best months of the year in the stock market.
However, it is important to note that (a) trees don't grow to the sky, (b) valuations matter, eventually, and (c) the current move is starting to look a bit parabolic (i.e. the current rate of ascent is unsustainable). As such, the odds would favor some sort of a pullback, corrective phase, or, at the very least, a pause in the joyride to the upside in the near-term.
Yet, technicians have been saying this for months now and the bulls have simply refused to yield. My take is there has been simply too much upside "discounting" of the tax bill's benefits to allow a decline of even 2%.
So, when does this run for the roses end? In my experience, these types of moves last longer than imaginable, especially if you find yourself siding with the bears. And since I don't believe in making predictions, I won't even fathom a guess as to when the bulls decide to take a break. But from a macro point of view, if the current melt-up continues, valuation metrics may begin to attract some attention - especially if the next earnings parade fails to live up to increasingly positive expectations.
So, the bottom line for me will be the state of the earnings season, which will get started in a couple weeks. Until then, "Party on Wayne" may be the best approach.
Today's Model Review:
LEADERS Model: The LEADERS currently holds positions in the Technology, Industrials, Health Care, and Financial sectors.
We've been saying that we have been looking for an opportunity to increase diversification in the near-term. However, the current ramp higher isn't helpful in this regard and is making us question the current environment - so stay tuned.
CORE Model (Risk Managed Exposure): Today's CORE model's exposure is below the current target at 90% vs. 115%. As a reminder, the goal of this model is to stay in tune with the overall risk/reward environment. Therefore, we make adjustments only when there is a meaningful and sustained divergence between the target model reading and our current positions.
TRADING Model: We currently hold trades in the Russell 2000, India Small Caps, Eurozone, a dividend-payer ETF, and the emerging markets.
Below are the current holdings of each model portfolio:
|Daily Decision Trading Service
Current Portfolio Summary
|The LEADERS Model|
|% of |
|Technology Select Sector SPDR||XLK||25%||12.1.16||$46.64||Hold|
|Industrial Select Sector SPDR||XLI||25%||8.14.17||$68.58||Hold|
|Health Care Select Sector SPDR||XLV||25%||11.27.17||$81.79||Buy|
|Financial Select Sector SPDR||XLF||25%||12.12.17||$28.19||Buy|
|The CORE EXPOSURE Model|
|% of |
|ProShares UltraPro S&P (3X)||UPRO||30.00%
(Equiv 90% Long)
|The TRADING Model|
|% of |
|iShares Eurozone ETF||EZU||20%||5.11.17||$40.25||Hold|
|First Trust Value Line Dividend Fund||FVD||20%||5.11.17||$28.88||Hold|
|iShares Emerging Markets ETF||EEM||20%||6.112.17||$41.57||Hold|
|VanEck Vectors India Small-Cap Index ETF||SCIF||20%||7.18.17||$58.00||Hold|
|iShares Russell 2000 ETF||IWM||20%||10.19.17||$146.09||Hold|
% of Model Explained
The number shown in this column represents the percentage of the the model this position represents.
Current Rating Explained
This is our rating for the day. The Current Rating tells you what action we would take if we did not currently hold the position. A "Buy" rating means we would be willing to purchase the position at current prices. A "Strong Buy" suggests this would be our first choice to buy. A "Hold" rating indicates we would not make new purchases at current levels. And a "Sell" rating indicates we will likely exit the position in the near-term.
Positions Can Change
Positions often change during the trading session. Remember that we will send a Trade Alert via SMS Text Message and/or Email BEFORE we ever make a move in the models.
About the Daily Decision Models:
The Daily Decision is designed to be a simple, easy-to-follow e-letter service showcasing 3 different model portfolios. The LEADERS model is the flagship, growth oriented strategy that focuses on "where the action is" in terms of market leadership. The CORE model is a longer-term, risk-managed approach to keeping exposure to market risk in line with prevailing conditions. And as the name implies, the TRADING model is intended to be a tactical, opportunistic trading strategy.
Wishing You All The Best in Your Investing Endeavors!
The Front Range Trading Team
NOT INVESTMENT ADVICE. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Investors should always consult an investment professional before making any investment.