The NEW Daily Decision for 7.23.18 - It's Time To Be Careful On That Ladder

The State of the Markets:

Since we are deep into summer vacation season, I'm going to keep things brief this morning and let the indicators do most of the talking.

My take on the current market action is the consolidation phase remains intact. Yes, the market has been moving cautiously higher since April. But as I've mentioned recently, there hasn't been and zest behind the move.

Remember, when stocks blast higher with some "oomph," something called a "breadth thrust" occurs. This is where advancing issues, demand volume, the number of technically healthy stocks, and/or new highs swamp their counterparts. The great thing about a surge in breadth is history shows it portends good things to come over the ensuing 3, 6, 9, and 12-month periods. But so far at least, these indicators have not flashed a fresh batch of buy signals.

In reviewing the indicator boards this morning, I feel the "state of the market" is summed up nicely by the groups of indicators/models presented. For starters, the Primary Cycle board isn't bad, but it isn't great either and the historical average return of the S&P 500 given the current readings of the models is well below average at 3.6% vs. 8.9%. The Trend board suggests the bulls have the ball. As I've been saying, the Momentum board is positive, but not robust. The Early Warning board tells us that stocks are overbought, and sentiment is becoming a bit overdone. And then, the External Factors board makes it clear that there are fundamental issues to be concerned with.

So, as a risk manager, I have to say that some caution is warranted here. To be clear, the state of the indicators doesn't mean that a bear market is imminent. No, the fact that the indicators aren't in great shape simply means the risk of a negative environment occurring is elevated.

Think of it this way. If you are climbing a ladder, the risk of serious injury from a fall off the third rung isn't very high. However, if you are near the top of the ladder, a fall could produce some real damage.

Continuing with this analogy, I'm of the opinion that the market has been climbing and is currently pretty high up on the ladder. This doesn't mean the market will fall off the ladder. After all, Ms. Market is indeed taking things slow here. However, being near the top of the ladder simply means that the chances of a fall are higher if you aren't careful and the damage from a fall would be greater than normal.

In short, I'm simply suggesting that this is the time to take things a little slower than normal.

Now let's move on to the weekly review of my favorite indicators and market models...

The State of the Big-Picture 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.

View My Favorite Market Models Online

The Bottom Line:

  • The Primary Cycle board upticked a bit this week as the Risk/Reward model reading moved from negative to neutral. However, both the Risk/Reward and External Factors models remain on sell signals. Finally, the historical average return of the S&P 500 when the Primary Cycle Indicators are in their current state is just 3.6% (versus 8.9% for buy/hold).

The State of the Trend

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.

View Trend Indicator Board Online

The Bottom Line:

  • The Trend Board remains in pretty good shape and the big-picture trend indicators aren't at risk of rolling over anytime soon. However, from a near-term perspective, the bears would grab control on a break below 2780.

The State of Internal Momentum

Next up are the momentum indicators, which are designed to tell us whether there is any "oomph" behind the current trend.

View Momentum Indicator Board Online

The Bottom Line:

  • The momentum board is little changed this week. My biggest complaint/concern is that we haven't seen the type of "oomph" that provides an all-clear signal.

The State of the "Trade"

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.

View Early Warning Indicator Board Online

The Bottom Line:

  • The "Early Warning" board continues to suggest that stocks are overbought from a short-term perspective and moving that direction quickly on an intermediate-term basis. In addition, sentiment indicators say investors are a bit too optimistic.

The State of the Macro Picture

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.

View External Factors Indicator Board Online

The Bottom Line:

  • The External Factors board remains conflicted. While the economy appears to be in good shape and earnings are strong, monetary conditions, and both inflation and valuation metrics are negative. The message here is pretty simple: Overall risk factors are elevated.

HCR Awarded Top Honors in 2018 NAAIM Shark Tank Portfolio Strategy Competition

Each year, NAAIM (National Association of Active Investment Managers) hosts a competition to identify the best actively managed investment strategies. In April, HCR's Dave Moenning took home first place for his flagship risk management strategy.

Press Release

Want to Learn More? Contact Dave

A Word About Managing Risk in the Stock Market

Thought For The Day:

You've got to be very careful if you don't know where you are going because you might not get there. -- Yogi Berra

Publishing Note: My next report will be published on Wednesday morning.


We are excited to announce that the latest upgrade to the Daily Decision service began being implemented on Monday, July 9.

The new, state-of-the-art portfolio will be comprised of three parts.

  • 50% Risk Managed Growth
  • 20% Market Leaders
  • 30% Top Gun Stocks

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: +7.4%
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, 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.

Posted to Daily Decisions Service on Jul 23, 2018 — 9:07 AM
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