Even as the market rests only fractionally off of all-time price highs, risk levels have persisted over the past 2 weeks and have even increased today. At the risk of getting too technical and confusing our frequent readers, here’s some of what we see.
One primary area of concern is that the rare (and often early) technical sell signal that was flashed on May 17th has since then twice come within 1 day of being negated, but in both instances negative internal readings reasserted themselves quickly and kept the “sell” warning intact. Also, today the market experienced another day of professional selling. (a “Distribution Day”) Additional concerns are the narrowing sector leadership within the market, as well as the high level of complacency (an almost “no fear” attitude) among investors. These items among others have raised the risk levels in the markets to where the risk/reward ratio is likely to be at best one-for-one. In other words, the odds are not on your side currently.
Bear in mind, if the market is in the process of putting in a “top”, it never happens in a single day. It is a process that can take several weeks, or even months to fulfill. At TPM, we know what to watch for and we monitor it daily. Upward momentum in a markets trend is very difficult to reverse. Many investors don’t see it at first (they are busy with their lifes) while others refuse to see it (they can be inherently positive, or possibly just greedy). In either case, it takes enormous negative developments and a lot of time to change the course of a bull market. One of Wall Streets most beloved adages is… “The trend is your friend”. Well stated indeed, but remember ALL trends come to an end, and usually do so undetected initially by most.
Let me illustrate it this way. The QE2, and I don’t mean “Quantitative Easing 2”, I mean the “Queen Elizabeth 2”, is a beautiful and huge ship. To change its direction, or better said, “To turn the ship around”, it takes a massive body of water. It is impossible for it to turn on a dime like a tug boat or a speed boat. And it can’t do it quickly either.
In my analogy the stock market is the QE2, the big ship, and the massive body of water refers to time. The markets uptrend is the “cruise route” and all appears well. But as something bad begins to develop under the surface in the engine room (read: recession, war, scandal, etc), and out of sight of all the happy passengers (read: investors), the captain (read: big institutional investors, or “Fat Cats” on Wall Street) changes course and begins to head the ship back towards where it started. Usually, its the passengers that are the last to know. This helps them to not panic and keeps them on-board (read: not selling) because the cruise line (Wall Street) benefits the longer the passengers (investors) hope for sunny destinations (read: riches) and continue to enjoy “the ride” (read: ownership of stocks).
So what’s my point? Our job at Triumphant is to watch for the subtle changes in the ships direction (the markets character) that may indicate early that the captain (the big boys & girls I mentioned above) may know something about the route (read: our economy) that we don’t and that the direction (trend) may soon change for the worse.
There are many items for investors to digest this week, most notably the testimony from fired FBI Director James Comey on Thursday. While we are still optimistic and remain mostly invested in our various strategies, we are realistically cautious and are still on “yellow” alert. For the markets trend to stay up, we do NOT want to see any Distribution Days the remainder of this week.
Wishing your investments smooth sailing and hoping you have a Triumphant day! Toot! Toot!
The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice.
©2017 Triumphant Portfolio Management, LLC.