One of the most infallible and rare momentum indicator is triggered and says stocks will be much higher six months down the road. Wish I had posted this yesterday as the indicator kicked in close of Wednesday. But I couldn’t believe my data and called a technical market guru yesterday to see if my data was correct. He said yep, the indicator sure did kick in. Anyway Marty Zweig’s ten day advance/decline ratio greater than 2 to 1 kicked in.
The way you compute this as shown in Marty’s book Winning On Wall Street is simply take the total 10 day NYSE advances and the total 10 day declines. Whenever that is greater than 2 to 1 you have a momentum buy thrust. You wouldn’t think this that rare but in his updated book you only had 11 instances of this occurring between 1953 and 1996. In all 11 instances the market was higher six months later and by an average of 15.2%.
Since the book and since the last signal listed in the book we have had two additional signals. March 2009 and as I discussed previously last year, January 2019. Those six months gains were higher than 15.2%. Unfortunately this indicator has been bastardized a bit by a computer formula and that formula shows another two signals. But when I went back and checked those signals did not qualify as described by Marty.
Marty’s double 9 to 1 up volume/ down volume indicator kicked in one day after the recent March low. I was surprised to see this other indicator kick in after an already 40% rise in the markets. Like everyone else I have never seen a market so detached from economic realty. So will be interesting if we keep marching higher for yet another 6 months or this time around the indicator fails. I have always been a disbeliever in traditional technical analysis and its associated mumbo jumbo. Yet always had the utmost respect and fully utilized Marty’s two momentum indicators most especially his up/down volume indicator.
(Zweig’s interview begins at about 6½ minutes into the clip below and has to be one of the most timely market calls in the history of financial media.)
Legendary billionaire trader Stanley Druckenmiller who several weeks ago said this was the most overvalued market in history has changed his tune. In a CNBC interview this morning he mentions the Zweig breath thrust as discussed in this thread as one reason and citing its “undefeated record”. Being into contrarian trading analysis I am not sure this is good or bad. It worries me a bit when all the billionaires who last month - and there were many - were out in bearish force about how severely overvalued we were start getting bullish.
Speaking as a former trader, I'm reminded of that great quote, "Markets can remain irrational longer than we can remain solvent."
As I said last night, I'm not dumping stocks out of fear but am being cautious if/when I deploy new money these days.
Man. I don’t remember a moon-shot like the markets have been experiencing the past month - while well aware it could end at anytime. To show how hot things are, two of my nat resource funds (PRNEX and PRAFX) each gained over 2% today despite oil, which they’re loaded with, being down. An unheard of divergence there. And my more aggressive DODBX has been outrunning more sedate holds like PRWCX and RPGAX ever since we hit bottom. Today, its gain in percentage terms (1.87%) exceeded the gain of the other two funds combined.
Your Drukenmiller mention is appropriate. While he’s one of the better ones out there, the TV pundits generally serve as better indicators of current market sentiment and conditions than as predictors of future market behavior. Would be amusing were it not so costly to many.
From this week’s Barron’s:
“The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.”- F. Scott Fitzgerald (as quoted by Randall Forsyth)
And this - “Baring a city-size meteor striking Earth, the (S&P) index could hit a new high by year end. With the meteor strike, we might get there by Independence Day” - Jack Hough
- Mark Mobius is convinced a huge infrastructure spending program is in the works (planning) and will be announced and passed by Congress prior to the election. Not the wall - but roads, bridges, airports, subways, etc. Part of the goal will be to put people back to work. That means more deficit spending. Am noting it now because more and more mention of it is popping up in the media I follow.
- There seems to be a growing consensus that the Fed will soon implement some form of “yield curve control”. I’m not sure what that would mean or do - but likely a way to keep money cheap.
- Normally near an election the Fed likes to refrain from any major changes in policy. So there’s a presumption among investors that the easy money policies now in place will continue at least until November.
Any / all of the above might help explain why the market has rebounded so sharply. This morning, futures down while gold has popped a bit. That reverse correlation is what you like to see if holding both. Moderates your volatility. (But doesn’t always work).
Your comment on gold prompts me to say the physical gold we inherited in 2012 has had a "V" shaped recovery: it has gone from $1675 to $1275 and now back up to $1700+. It cost me more for the safe deposit box than my entire appreciation.
Hi Ben. Nice dig. Mobius seems to be the eternal optimist. Likely a disciple of Sir John. I resisted mentioning this (infrastructure reference) until I started hearing it from other sources.
Don’t follow EM that much. They’ve pretty much been overhyped for long as I can remember. Nice bump past 2+ months for PRLAX (mostly Brazil / Mexico). But I only toy with such funds when they’re already clogging up the toilet - seemingly can’t go down further. If you can take the stench, sometimes you can grab a quick profit. Suspect that’s a pretty common game and has likely detracted from longer term profitability for some EM funds.
What are your thoughts on the Rondure Funds...mgr has good experience, stock picks based on Ev/Ebit, low debt levels, return on equity, etc...looks for "compounders" similar as to the team at AKRE...seems reasonable to me, although in this market environment maybe not enough of "bro-investing stock picks in her funds, i.e., just put your money down and go for it, high risk, high return"...ROSOX, Rondure Overseas Fund
I never understood investing my hard earned capital that invests in companies in parts of the world that I couldn't even pick out on a map with who knows what kind of accounting practices...maybe that says more about me and my inclination to own what I know and my appreciation for rule of law, understandable accounting practices etc...
Best Regards to All,
Can stocks go hgher? Absoutely. And, I hope they do!
Commentary. Just a bit here: “Rondure Global Advisors is newer investment adviser which is Grandeur Peak’s partner. Rondure, like Grandeur Peak, was launched by an alumna of the Wasatch Funds,” https://www.mutualfundobserver.com/2019/02/as-the-world-turns-rondure-global-gains/
Global equity funds are pretty far outside my normal investment zone. But I am now beginning to shade a bit more in that direction, since funds holding fixed income (like traditional balanced funds) are at a real disadvantage in this low rate environment. Also, I’ve been trying to get out of the U.S. (figuratively and literally) as I think we’re headed for a lot of chaos as November approaches - markets might not like it. U.S. appears “bubbly” as well.
My first foray into any pure equity fund in many years was into Price’s developed foreign markets index fund, PIEQX, which I picked up in March and have already reduced by 30 or 40%. While it hasn’t leaped very far, all my other stuff has, and this one is the easiest to cut back on as its a spec position and not part of my normal allocation. It’s not a high octane fund by any measure. But the ER of .40 is appealing and TRP - much as I like them - have never excelled in the international arena. Past experience leads me to believe that, as international funds go, this one is relatively docile.
You mention ROSOX. Let’s take a look. ER 1.10% isn’t bad for an actively managed international fund. Probably about average. Holdings: 60% Europe, 30% Asia - almost all of that in Japan. (Looks quite a bit like the index fund I own.) ROSOX is only 3 years old. That would normally chase me away - but it appears from David’s commentary that the managers are well experienced. Close call. I’d feel better with a fund that had been around at least 10 years. Better chance of having a stable investor base. The fund has already jumped about 10% from its March low. Not as cheap as it was than. (Woulda, coulda, shoulda.) Lipper gives it a 5 in “preservation.” That’s a coveted rating, as international funds tend to be more volatile than their domestic brethren. Not a bad choice. I’d perhaps look around a bit more before deciding.
Now, will folks more familiar with international equity funds and / or Rondure please chime in?
Over the past decade, investors have not been rewarded for taking on the risks of pure international funds, whereas they have been rewarded for buying global growth funds. Maybe international value will have its day again, but waiting for it has become stale for me. The members with the skills at charting could prove me wrong, however I’ve not seen international funds zig when US funds zag during this time period thereby negating the diversification advantage usually attributed to overseas investing. One of my high conviction holdings is Heugh’s MGGPX.
P.S. The fat lady has yet to sing.