Wednesday, June 22, 2016

Stock Market - Bull and Bear Case

There is a lot of uncertainty in the financial markets right now. Typically such uncertainties help in building a wall of worry, which bull markets like to climb.

However, the problem with focusing on uncertainties is that one loses the better things in the translation. For example, right now global financial media is focused on Brexit, it will then focus on Fed's interest rates, China issues, US elections or some other issue. At the same time, low unemployment, stable economy and a year of sideways gains digestion is totally ignored.

Second set of items listed above clearly highlight the positives going on in the market. Therefore, its paramount to see the markets from an objective perspective. Please note that just seeing is not enough, seeing has to be coupled with action. And that's why many analysts who are right on the overall economy or future market direction, end-up losing money in their portfolios.

As part of this objective analysis, we have been discussing various markets on this blog. This week we will focus on the stock market because there are several reasons for the market to rally and to fall. As a result, I have decided to document following positive and negative aspects of the market in the next few blog posts.

  1. Its been more than a year since last market high. History suggests that if the market rallies after such a development to new highs, we can expect continued gains
  2. Narrowing/coiling long-term technical indicators, suggesting fuel is being built-up
  3. Elliott Wave analysis
  4. Proprietary Bull/Bear model approaching a break-out
  5. Rising cash positions in funds and equity outflows
  6. No divergence in advance-decline line
  1. Extremely high Commitment of Traders (COT) bullish bets 
  2. Not a lot of pessimism in the sentiment surveys
  3. Potential Elliott Wave count
In either case, next market move is upon us. It will be a sharp and sustained move. Therefore, we need to position in a way so that we can benefit for such a move.

The proprietary model portfolio is up ~15% YTD in a year where SP500 is up ~3% after dividends. We will continue to pursue the model and allocate strategically to benefit from sharp market moves. 

Please feel free to add how you feel about the market in the comments section or on twitter @survive_thrive


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