Thursday, February 23, 2017

Market Behavior and Impact on Gold

Market Overview

Markets have rallied very significantly. First burst of the rally was after election till mid-December and the second burst has been from end of January till today. Impressively, our proprietary Market Classification Model remained long stocks during this entire period. Model turned bullish soon after Brexit and has remained bullish since July’16.

Although in the hindsight one can easily say that the market rallied and it was prudent to remain long throughout this time, most of the market participants did not stay long. In fact, there have been significant bursts of pessimism during this rally. For example:

  • Brexit induced anxiety
  • Election related stress
  • Post-election disbelief
  • Post Executive orders convolution

However, these kind of market panics are the very reason why this market has been able to rally this far – Market likes to climb a wall of worry.

Now that stocks have rallied sharply over the last two weeks, we are approaching a period of consolidation. Consolidation doesn’t mean a sharp decline rather a period of sideways action like we saw in January, to digest recent gains. A potential scenario is market topping towards the end of February, according to Inflection Point Model and then consolidating till next earnings reports to justify high prices.

Once this consolidation phase arrives, other assets like Gold are likely to outperform.


Gold has been consolidating for some time. And this consolidation is supported by a series of higher highs and higher lows, which means that the next stage rally could be very significant. Gold also remains in a Bull market and would be an ideal candidate for a continued rally.

Following chart shows Gold performance over the past 2 months, where a steady uptrend is clearly visible.

Gold stocks are also tracing out higher highs and higher lows. In fact, following chart shows a potential head and shoulders pattern being crafted out by the Gold stocks. Once this pattern is completed, Gold miners can easily make a run for the summer 2016 highs.

 Latest MCM report included details about Gold’s uptrend and where the trend is with respect to the overall bull market.

Upside potential is further amplified by the fact that Gold performs very well in an inflationary environment and with rising interest rates, we are likely entering an inflationary environment.

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Wednesday, February 15, 2017

Next Market Turn Window

Market is on a tear and there is no sign of backing-off. Sentiment as subsided in the past few weeks, which has given fuel for this bull to ramp on. Furthermore, there are no sell signals on the horizon that suggest immediate danger.

We remain long the stock market because our Market Classification Model remains bullish, which turned bullish on stocks in July 2016 and has remained bullish ever since. However, it is critical to understand potential future turn dates.

According to latest Inflection Point Model, stocks will likely experience turbulence towards the end of Feb 2016. Following chart shows the IPM model output.

IPM Model turn date is scheduled for Feb 28 (+/- 4 days). Most likely, this will turn out to be a top. However, we will continue to evaluate the market conditions for any sell signals, as we approach this turn date.

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Tuesday, February 7, 2017

2017 Investment Themes

There are many prominent investment themes for 2017. Investment themes help investors understand the broader investment landscape based on historical performance of different asset classes and their current catalysts. This analysis helps in properly positioning one's portfolio to take advantage of the winds of change.

US Stock Market

SP500 and DJIA have experienced an amazing 1 year rally. Since Feb 2016, markets are up ~30%. With such a sharp rally, it won't be wrong to expect a sideways/downward market correction. Since corrections can come in different forms, sideways correction with time will help in digesting last year's gains just like a sharp fall in prices.

Lofty price levels can be supported by equally good earning numbers, which can provide further fuel for the rally. However, with the uncertain political dynamics in the U.S. we should be prepared for any sudden decline in the US stock prices like 1987 market crash - not a certainty but a word of caution.

Note: Next earnings will be reported in mid-April 2017

Emerging Markets

On the other hand, emerging markets finished a 5 year long correction in 2016. As US markets rallied, emerging markets corrected from 2011 to 2015. Since bottoming in 2016, emerging markets have rallied and looks like they have formed an inverted head and shoulders pattern. Once they breakout, emerging markets could go up to there 2011 highs. Therefore, this is an area to keep in mind.

Precious Metals

Gold had been declining since 2013. It bottomed in early 2016 and then rallied sharply. However, since mid-2016, Gold has again experienced a major pullback. However, we think that this pullback is a buying opportunity and would result in higher prices. 

Following chart shows a potential inverted head and shoulders pattern being formed by gold. Once this pattern is complete, gold can make an advance towards all-time highs around 1900. However, the first target would be to reach July 2016 highs. Therefore, gold is an area which one should keep on his/her radar for investment opportunities.

Precious metals are also influenced by the US dollar. US dollar has rallied very significantly over the last two years or so. Therefore, as the US Dollar corrects, it will provide fuel for a rally in the precious metals complex.


Bond have been in a long-term bull market. In fact, its one of the biggest bull markets in history of bond prices. However, the bond price cycles are turning and so are the prices. Now the question is whether the Bond Bull has ended or it still has some life left.

Bond prices started declining in mid 2016 and have reached a critical area. Prices should reverse to the upside soon or they will mark the end of the Bond bull, which can be disastrous for the debt-laden global economy. We will keep a tab on the Bond market to understand clues for the future of the US economy.

Investment Options

We are working very hard to make these strategies available for investors. If you are interested in investing, you can register below and we will send you update when the strategy is available for investments. Some of the key outputs from the data models used in this strategy are also available through subscription

Saturday, February 4, 2017

January 2017 - Performance Review

January was an interesting month for the markets. In the beginning of the month, markets continued to go sideways, which they had been doing for past couple of weeks - since mid December 2016. Then came the earnings and market zoomed higher. Although this rally was not as significant as post election rally in 2016, it did bring back a lot of enthusiasm. The rally continued with President's oath taking. However, it experienced some difficulty towards the end, with the immigration executive order confusion and protests across the United States.

Following chart shows how SP500 performed in the first month of 2017:

To summarize January action, it was a volatile month. Volatility does not only impact our portfolio, it hampers our investment decisions, self-confidence and risk-taking abilities. In order to reduce the impact of volatility and realize long-term consistent results, UST team develop proprietary strategies based on our 8+ years of investing experience, as documented in this blog and other sources.

These strategies went live with real money at the start of 2016. Their 2016 performance has been documented here (link). Our team is currently working on more than 5 strategies. Two of these strategies have moved to production, two are in beta phase and others are in final development phases.  

Investment Strategies

Two strategies (one conservative and other aggressive) will be used for clients' investment needs. These strategies are customized to meet the performance and risk profile needs of investors. These strategies utilized strategic and tactical portfolio allocation techniques, along with proprietary market timing methods to generate Alpha with extremely low correlation with the benchmark SP500. Hence, have very high Sharpe Ratios.

Following chart shows January 2017 performance of Conservative and Aggressive strategies, directly taken from the brokerage account.

Conservative strategy performed 4.53% and Aggressive strategy gained 11.36%, while SP500 was up 1.90% in January.

Performance of these strategies is also tracked on OpenFolio to see daily changes. Following chart shows daily YTD performance for the Conservative Strategy:

Interested ? 

There are two ways to follow and invest in the strategy:
  1. Utilize some of the offerings that UST offers (link). We will officially start sending our Market Classification Model updates in February 2017. And plan to add additional services in the next few months.
Overall, we will actively be working on this blog to ensure that all the services are streamlined. If you have any questions please feel free to comment or interact with the team via Twitter @survive_thrive. Please use the below sign-up button to register for free newsletter or other services: