The State of the Markets:
The NASDAQ - you know, the index where most of the market's hot stocks tends to trade - closed Friday at a fresh new all-time high. The S&P 500 appears to have broken out of the recent range. The small-cap indices are in uptrends and just a stone's throw from last week's record closes. Thus, it is easy to argue that the price action is bullish.
From a macro perspective, the economy is growing at the fastest pace in years. Consumers are upbeat. Business owners are very optimistic. And earnings are set to grow at a 20%+ clip again this quarter. So, our heroes in horns suggest things are looking good.
What's not to like, right? As such, the bulls can't be blamed for thinking that all is right with the world.
But... My guess is you knew that was coming... I find myself increasingly uncomfortable with the 'everything is peachy keen' view of the world.
No, I'm not talking about the news flow stuff regarding the trade war, Russia, political instability, etc. I'm talking about too much red and not enough green on two of my important indicator boards.
To clarify, the Trend, Momentum, and Early Warning indicator boards I post each Monday focus on what is happening in the market from a shorter-term perspective. It's the other two boards that are starting to give me some indigestion: the External Factors and the Primary Cycle board.
The Primary Cycle board includes five of my favorite, long-term, big-picture market models. In reality, I could easily manage money with these models alone. The problem is that two of the five models are currently on sell signals, which is two too many if you want to be outright bullish. And while three models remain on buy signals, two of those models are currently neutral, leaving only a single green box. Oh, and the Leading Indicators Model is just barely in the neutral zone.
Then there is the External Factors board. The bottom line here is there is a lot of red and very little green. While the monetary and valuation components have been negative for some time (and are both LOUSY timing indicators), the economic composite (remember, this is a set of economic indicators designed to "call" the stock market) recently slipped to neutral. And the Inflation composite slid into the red zone a few weeks back.
And yet, the indices are either at or near all-time highs. This, folks, is what a "divergence" looks and feels like. The market makes new highs, everybody is upbeat, and it looks like nothing can go wrong. Until it does, of course.
My main point this morning is the External and Primary Cycle boards should be viewed as warning flags. To be clear, there is no reason to head for the hills at this point. I do not see a bear market developing.
But in reality, most folks never see a bear coming. They don't see recessions, bubbles, or external events coming either. And the key is that with several important indicators waving yellow flags, it is probably a good idea to take one's foot off the gas for a while. Or at the very least, to be on the lookout for something "out of the blue" to occur that could change the game.
Now let's move on to a review of my favorite indicators and market models...
I like to start each week with a review of the state of my favorite big-picture market models, which are designed to help me determine which team is in control of the prevailing major trend.
The Bottom Line:
Once I've reviewed the big picture, I then turn to the "state of the trend." These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.
The Bottom Line:
Next up are the momentum indicators, which are designed to tell us whether there is any "oomph" behind the current trend.
The Bottom Line:
We also focus each week on the "early warning" board, which is designed to indicate when traders might start to "go the other way" -- for a trade.
The Bottom Line:
Now let's move on to the market's "external factors" - the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.
The Bottom Line:
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The new, state-of-the-art portfolio will be comprised of three parts.
The Risk-Managed Growth portion is made up of three trading strategies and accounts for 50% of the portfolio. The Market Leadership portion makes up 20% of the portfolio. And the Top Guns Stocks portion (10 of our favorite stocks) will make up the final 30% of the portfolio.
All three of our strategies will be run in a single Marketfy model - the model is currently labeled as the LEADERS model. The goal is to make the service simpler to follow by putting everything in one place.
Today's Portfolio Review:
2018 YTD Performance Update:
Daily Decision Portfolio: +7.2%
S&P 500: +4.8%
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.
At the time of publication, the editors hold long positions in the following securities mentioned: SPY, IJR, QQQ, XLK, XLV, XLY, XLF, AAPL, NVDA, MSFT, GOOGL, AMZN, FB, SPGI, JPM, MUR, PFGC - Note that positions may change at any time.
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.