Most Recent Comments Via Twitter

June 30, 2015

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

New Client Update: Greece And Risk Management

June 28, 2015

This is a NEW video created on Sunday, June 28, 2015

Most recent comments regarding Greece and next week can be found here. Charts in video will assist with contingency plan next week. NOTE: Game plan is based on what we know as of Friday’s close. Plan can/may be adjusted as “knowns” change during week. If your account has stocks that were transferred in, we will be monitoring risk for those positions as well. We may adjust/reenter stops after the open. We do not want to get stopped out during a spike in fear after the open or in the first hour or so of trading.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Charts: Correction or New Bear Market?

June 27, 2015

Most recent comments regarding Greece and next week can be found here. Charts in video will assist with contingency planning this weekend.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

How Much Ground Have The Bears Gained?

June 26, 2015

Video is up. You can find it here.

Most Recent Comments Via Twitter

June 26, 2015

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

Consumer Spending Still Sides With Stock Market Bulls

June 25, 2015

The Consumer Is The Economy

You have probably heard “consumer spending makes up 70% of GDP”. While government spending on healthcare is included in the 70% figure, there is no debate about the importance of the actions of consumers relative to earnings and the stock market (see chart below).

Consumers Open Wallets

Thankfully, markets pay attention to everything, not just the painful and slow debt negotiation in Europe. Thursday brought a welcome distraction in the form of the latest read on the U.S. consumer. From Bloomberg and Econoday:

The consumer came to life in May, boosted by a 0.5 percent rise in personal income and helping to support a 0.9 percent surge in personal outlays that reflects heavy spending on autos and retail goods. And gains are not inflationary, at least yet, based on the very closely watched core PCE price index which edged only 0.1 tenth higher in May and is at a very benign 1.2 percent year-on-year rate which is actually down a tenth from an upward revised April.

Investment Implications – The Weight Of The Evidence

Consumer discretionary stocks were waving yellow flags in the second half of 2007, before the S&P 500 peaked (see to the left of red arrow).

Are we getting similar “the economy is in trouble” warnings from consumer discretionary stocks in 2015? Not yet (see chart below).

Are consumer stocks a fool-proof way to monitor risk in the stock market? No, it is prudent to make decisions based on numerous inputs, which is what our market model does. The model continues to call for patience with growth-oriented assets. If the hard data starts to deteriorate, which it may, we are happy to make the necessary adjustments.

Public market image from Michael Righi via Flickr.

Three Charts That Convey A Lot Of Information About The Stock Market

June 23, 2015

Stocks Peak in 2000

The chart below shows the 2000 peaking process in the NASDAQ. The index made a lower high, a lower low, and then dropped below the 50-day moving average shown in blue.

Stocks Peak In 2007

The chart below shows the 2007 peaking process in the NASDAQ. The index made a lower high, a lower low, and then dropped below the 50-day moving average shown in blue.

How does the same chart look today?

The NASDAQ recently made a higher high, which for now negates the possibility of a lower high and lower low. The index is still above the 50-day moving average and the slope of the 50-day is positive (bullish).

Taking It Day By Day

Could the major indexes begin to fade in 2015? Sure they could, but under our approach, there is no need to anticipate, forecast, or guess. At some point, stocks will experience a correction, but it all must start with a lower high, something we do not have on the 2015 chart of the NASDAQ.

New Highs In 2015 vs. Lower Lows In 2007

On Twitter, we have recently shown new highs in small caps, consumer discretionary, and healthcare. This week’s video showed lower highs that were made in small caps, consumer discretionary, and healthcare in late 2007 before the ugly returns of 2008.

New Highs Speak To Probabilities

Are lower highs and lower lows always a big deal? Not necessarily, since they happen frequently. The point is a lower high and lower low is one of the easiest bearish thresholds to cross. Said another way, not too many bad things can happen if you can avoid lower highs and lower lows by making new highs.

Three monkeys image from Anderson Mancini via Flickr.

Skeptical Sentiment In A Sideways Market: Bullish Or Bearish For Stocks?

June 22, 2015

Skeptical Sentiment – What Could It Mean?

As shown in the chart below, the S&P 500 has made very little progress over the past five months.

It seems logical the longer stocks “go nowhere”, the more skeptical investors become. What does history tell us about waning enthusiasm for stocks that occurs over several weeks? From Barron’s:

Just 25% of respondents to the latest American Association of Individual Investors sentiment survey called themselves bullish [2015]. That’s the seventh week in a row that the percentage of bulls was under the long-term average of 30%, the longest such streak since 2003. Bill Smead, portfolio manager of the Smead Value fund (ticker: SMVLX), notes that the 2002 reading came “after tech stocks got crushed in the three preceding years and the index had declined more than 40% from peak to trough.” Now, despite everything that could go wrong—including a Fed interest-rate hike and the possibility of Greece leaving the euro zone—he believes the negative sentiment is bullish for stocks.

What Happened Last Time?

We have just had “the longest streak since 2003” of investor skepticism. Was 2003 a bad time to invest? Assume we invested on June 30, 2003 or halfway through a year marked by a long period of skepticism similar to 2015. How would we have done in stocks? The answer is shown in the chart below.

But, 2003 Was A Different Time?

Yes, it was. The same is true for any historical reference. We did not pick 2003…history picked 2003 since it was the last time the AAII survey showed the percentage of bulls below 30% for seven consecutive weeks. In 2015, we just saw the seventh consecutive week of bulls below 30%. The chart below provides some additional insight related to the question:

Even in the face of skepticism, was 2003 a good year to invest?

Do Other Facts Support The Bullish Case?

Is sentiment a reason alone to invest? No, it is best to make decisions based on numerous inputs. Do other facts support the bullish case? You can decide after viewing this week’s stock market video, which features recent action in small caps (IWM), consumer discretionary stocks (XLY), the S&P 500, and the healthcare sector (XLV).

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Other Years That Featured Tight Ranges

In addition to sentiment, we have seen stocks basically tread water in the first half of 2015. What does history tell us about similar years? From Barron’s:

In fact, stocks have performed quite well after a quiet start to the year. Paul Hickey of Bespoke Investment Group, looked at the 10 years during which the S&P 500 stayed closest to where it had started during the first 117 trading days. He found that it had risen 6.6%, on average, in the rest of those 10 years. Says Hickey: “A sideways market can be a correction in time, not price. Expect things to drift higher from here.”

How about the long-term outlook and skeptical sentiment?

As discussed in a June 12 video clip, skeptical sentiment was also present in the late 1970s and early 1980s; a period that was followed by one of the longest bull runs in stock market history.

Investment Implications – The Weight Of The Evidence

With the situation in Greece still unsettled, as always, it is important for us to keep an open mind about all outcomes (bullish and bearish). Based on the facts we have in hand, our market model is still calling for patience with our equity-based holdings. The facts and markets will guide us if we are willing to pay attention with an unbiased and open mind.

Most Recent Comments Via Twitter

June 22, 2015

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

How Vulnerable Is The Stock Market?

June 20, 2015

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.

Video

Video

Link will take you to a The Two Most Important Questions For Investors.

Concerned About Being Underinvested? You Should Be is also relevant for many investors sitting on large cash balances.

Weekend Reading