Scott Martindale  by Scott Martindale
  President, Sabrient Systems LLC

July was yet another solid month for stocks, as the major market indexes eclipsed and held above psychological barriers, like the S&P 500 at 3,000, and the technical consolidation at these levels continued with hardly any give back at all. But of course, the last day of July brought a hint of volatility to come, and indeed August has followed through on that with a vengeance. As the old adage goes, “Stocks take the stairs up but ride the elevator down,” and we just saw a perfect example of it. The technical conditions were severely overbought, with price stretched way above its 20-day simple moving average, and now suddenly the broad indexes (S&P 500, Dow, Nasdaq) are challenging support at the 200-day moving average, while the small cap Russell 2000 index has plummeted well below its 200-day and is now testing its May low.

For the past 18 months (essentially starting with the February 2018 correction), investor caution has been driven by escalating trade wars and tariffs, rising global protectionism, a “race to the bottom” in currency wars, and our highly dysfunctional political climate. However, this cautious sentiment has been coupled with an apparent fear of missing out (aka FOMO) on a major market melt-up that together have kept global capital in US stocks but pushed up valuations in low-volatility and defensive market segments to historically high valuations relative to GARP (growth at a reasonable price), value, and cyclical market segments. Until the past few days, rather than selling their stocks, investor have preferred to simply rotate into defensive names when the news was distressing (which has been most of the time) and then going a little more risk-on when the news was more encouraging (which has been less of the time). I share some new insights on this phenomenon in today’s article.

The market’s gains this year have not been based on excesses (aka “irrational exuberance”) but instead stocks have climbed a proverbial Wall of Worry – largely on the backs of defensive sectors and mega-caps and fueled by persistently low interest rates, and mostly through multiple expansion rather than earnings growth. In addition, the recent BAML Global Fund Manager Survey indicated the largest jump in cash balances since the debt ceiling crisis in 2011 and the lowest allocation ratio of equities to bonds since May 2009, which tells me that deployment of this idle cash and some rotation out of bonds could really juice this market. It just needs that elusive catalyst to ignite a resurgence in business capital spending and manufacturing activity, raised guidance, and upward revisions to estimates from the analyst community, leading to a sustained risk-on rotation.

As a reminder, I am always happy to take time for conversations with financial advisors about market conditions, outlook, and Sabrient’s portfolios.

In this periodic update, I provide a detailed market commentary, offer my technical analysis of the S&P 500, review Sabrient’s latest fundamentals based SectorCast rankings of the ten US business sectors, and serve up some actionable ETF trading ideas. In summary, our sector rankings look neutral to me (i.e., neither bullish nor defensive), while the sector rotation model retains a bullish posture. Read on…

Scott MartindaleIt is surely understandable if an investor is afraid to participate in this choppy stock market. Bounces from support are met with selloffs from resistance. In 2008, we got a strong downtrend, and in 2009, we got a strong uptrend, but this year has been difficult to gauge.

smartindale / Tag: absolute-return, ETF, iyw, IYZ, long/short, sector, stock-strategies, stock-trading, XLB, XLE / 0 Comments

Scott MartindaleAmazingly, the market has given us four major trend changes in the past month alone, which apparently hasn't happened with such frequency in over 10 years. Last week, the market was staring into the proverbial abyss as the S&P 500 incurred the dreaded “death cross,” in which the 50-day moving average of price crossed down through the longer-term 200-day moving average.

smartindale / Tag: absolute-return, ETF, iyw, IYZ, long/short, sector, stock-strategies, stock-trading, XLE, XLP / 0 Comments

Scott Martindale

Market volatility continues, with the Dow gapping down under 10,000 to start the day today before recovering nicely by the close. Most of the major indexes are still below their 200-day moving averages, but interestingly, the Nasdaq 100 (QQQQ) and the Russell 2000 (IWM) actually closed above theirs. I see this as bullish.

Scott Martindale

The stock market’s technical “topping formation” finally manifested in a correction in early May, and it resumed over the past several days. The 20-day moving average that had provided consistent support during the methodical rally has proven to be formidable resistance (along with the converging 50-day).

Pages