The markets continue to reach all-time highs thanks to T.I.N.A. With Certificate of Deposit rates near historic lows, Real Estate facing tighter standards, Commodities being leveraged & too risky and Bond prices rather expensive, the Stock Market is benefiting from the fact that There Is No Alternative (T.I.N.A.) for investors who are seeking growth for their assets.
There is recent good news, along with some bad news, for equity investors. The good news is that the rare technical “sell” signal from the middle of May has finally been negated. (That particular series of technical indicators has a historical accuracy ratio in the high 80%.) As a result of recent bullish action in the major indexes, that indicator has now flashed an all clear signal.
The bad news is that the above mentioned rare “sell” signal is only 3 days away from a possible new technical sell signal being triggered. Additionally, there is an apparent shift happening in the market, commonly called “rotation”, where certain strong areas’s of the market are sold hard by institutions and the proceeds from those sales are then redeployed into other areas. The area that was sold hard recently was the Nasdaq; specifically leading technology stocks. Institutional investors appear to have developed an appetite for the financials and the health care industry and have begun rotating their buying into banks & drug stocks.
Regarding “rotation”, institutional investors tend to rotate into one of three areas: cash, defensive names (bonds, utilities, soaps, etc) or new promising areas in the market. The former is in a “panic” and the latter is a continuation of a bull market. The middle option generally indicates a slowing economy which may lead to a recession. No matter what the outcome, we are keeping a close eye on this for our clients.
Finally, many participants are wondering if the June 9th harsh Nasdaq sell-off was the 2nd shot across the bow? (With May 17th being the first) Only time will tell. But rest assured the markets internals will inform discerning investors/managers WELL before the news media recognizes and communicates the change in the prevailing trend.
Stay on-board “the ship” for now, keep checking back for our TPM updates and have a Triumphant day!