The State of the Markets:
Bearish reversal? What bearish reversal? It turns out that Wednesday's market narrative made a mockery of Tuesday's hand wringing relating to a potential government shut down and the end of QE as we know it. So, cue the reversal of the reversal, or the dip buying, or whatever you'd like to call it. The bottom line is that one day after a 380 point reversal off the top, the blue-chip indices bulled their way to fresh all-time highs. Dilly Dilly!
If you find yourself shaking your head at this week's action or wondering how stocks, bond yields, and the VIX can all go up at the same time one day after what was purported to be an "important reversal," you are not alone.
P.S. Anyone who claims to have "called" today's move should be avoided like the plague. But I digress.
The key to my oftentimes meandering morning market missive is to identify the driving forces behind the market's movement. To be clear, we are NOT trying to pass judgement on the action, rather to try and understand why Ms. Market is doing what she is doing.
So, from my seat, Wednesday's joyride to the upside was triggered by a resumption of the "growth narrative" and was sponsored by our good friends at Apple (NASDAQ: AAPL).
To clarify, the current market narrative is a two-parter. First, it is becoming apparent that the trend in Corporate America is to use the tax benefits created by the new tax bill to spend money. On bonuses. On plants. On hiring.
And the second part is that the stock market has yet to "price in" the full effect of what is happening out there.
Exhibit A in this argument was Apple's announcement yesterday that it was bringing home a boatload of cash, paying a big bunch of taxes, and will be accelerating their investments in plants and job creation here in the good 'ol USofA.
More specifically, Apple announced that it will be repatriating what sounds like about $245 billion in overseas cash, which will put an estimated $38 billion in the U.S. Treasury. According to reports, I believe this will be the biggest tax bill in history. So, as Americans, please join me in saying a big "Thank You!" to Mr. Cook and Co.
In addition, Apple will be investing $350 billion in the U.S. over the next five years. $30 billion of which will go toward building a new campus somewhere in the U.S. (let the bidding begin!).
Next, the maker of the iPhone says they will create 20,000 new jobs in the U.S. And it didn't take long for the White House to take a bow and to Twitter to crow about the success.
And finally, the company announced that it will award bonuses of $2,500 in restricted stock units to the majority of its 80,000 employees.
While the critics/skeptics argue that Apple created 4,000 new jobs last year, the key to market participants is the overall narrative here. The narrative that the tax bill is spurring new growth and new investment. And that this growth has yet to be "baked in" to stock prices. Everybody now, "Dilly Dilly!"
So, the game of discounting the anticipated greener pastures appears to be ongoing. And the bulls tell us to expect more Apple-like news relating to new growth throughout earnings season. As such, I, for one, will be keeping my eyes and ears open and paying special attention to the upcoming parade of corporate reports. In short, this ought to be interesting!
Talk to people about themselves and they will listen for hours. -Benjamin Disraeli
Wishing you green screens and all the best for a great day,
Disclosure: At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none.
Note that positions may change at any time.
Today's Model Review:
LEADERS Model: We made adjustments to our LEADERS model yesterday. First, we took profits in our financials holding by selling XLF. We then began the process of adding a 5th position to the portfolio by reducing the current holdings in tech, industrials, and health care to 20% each. We then added a 20% position in the materials sector (XLB). This leaves 20% of the portfolio in cash. Our plan is to redeploy this cash into the next market pullback. And yes, feel free to insert an eye-roll here. However, the current rally is getting a bit too exuberant for our taste and we have decided to create some dry powder here. Mbr>
The LEADERS currently holds 20% positions in the Technology, Industrials, Health Care, and Materials sectors.
CORE Model (Risk Managed Exposure): Today's CORE model's exposure target: 90%
To review, 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.
2018 YTD Performance Update:
DD LEADERS: +5.7%
DD CORE: +5.3%
DD TRADING: +4.3%
S&P 500: +4.8%
|Daily Decision Trading Service
Current Portfolio Summary
|The LEADERS Model|
|% of |
|Technology Select Sector SPDR||XLK||20%||12.1.16||$46.64||Hold|
|Industrial Select Sector SPDR||XLI||20%||8.14.17||$68.58||Buy|
|Health Care Select Sector SPDR||XLV||20%||11.27.17||$81.79||Hold|
|Materials Select Sector SPDR||XLB||20%||1.16.18||$63.02||Buy|
|The CORE EXPOSURE Model|
|% of |
|ProShares UltraPro S&P (3X)||UPRO||39.70%
(Equiv 120% 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||Buy|
|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||Buy|
|iShares Russell 2000 ETF||IWM||20%||10.19.17||$146.09||Buy|
% 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.