Today is 112 market days from the 3/23 low. 
Check for consistent ranking within the past 21 days for new commitments OR Jack’s 5-10 day rule as he explained in the session on 8-25.  

Friday’s closing macro data is 5 of 5 confirming commitments to equities.

Daily, I monitor DJIA, S&P, COMPQX, VIX and the futures for gold, light sweet crude, lumber and the US$. The trend for the indices remains upwardly biased. The dollar declined supporting international allocation and possibly supporting metals moving up through resistance.

Generally, narrow leadership with risk on though lacking mid and small cap confirmation. Bias remains positive.

The trend is our friend until it ends.

Momentum activity both up and down remains low. Very little dark pool evidence in my Schwab scan. AAPL & TSLA prices will drop with the share splits effective today. Expect volatility with end of month portfolio adjustments increasing whipsaw risk.

Following up on last week’s decision by the Fed to change inflation targeting process to average results.

This raises the similar error issues in MPT’s use of averages.

The Fed has a poor success record in achieving the goal of 2% inflation. Further the Fed’s “new deal” will “engineer inflation” instead of waiting for an overshoot.

To paraphrase Admiral Farragut: “Damn the (debt)… Full speed ahead.” President Macron of France encourages the ECB to maintain “as much as it takes” policy or face deflation and political chaos.

Unresolved, what will the Fed use to track inflation.

 

Central bankers seem to be united in a common policy generating financial bubbles and increasing the division between investors and all others. Federal Reserve “staff judged that asset valuation pressures were notable.” Read that as “bubble.”

Previous updates have documented the Fed’s expanded balance sheet has not resulted in greater loan volume to businesses.

Historically, the result was expanded capital expenditures and hiring. Not so in this cycle as investment banks have held back the funds for loan losses and increased liquidity for their proprietary trading  desks.

The theme of Saturday’s radio show was risk. The assumptions of a balanced portfolio are now trash since portfolio structure requires static correlations between stocks and bonds.

With the S&P and COMPQX pushing through all time highs, there is no point of resistance above from which to judge the next move. With correlations 1:1, the benefit of stock:bond diversification is negated. Risk management requires technical processes as taught in No More Pies conferences.

Several are possible with technical tools. Possible targets for the S&P are higher by 4.4%, 12.2% and 19.5% at the 4000 mark. These seem just as reasonable as declines of 15%, 20% or 36% aat the March lows.

VIX has remained low though close to breaking above August 11 resistance. VIX futures, however, are higher for November than any of the three prior Presidential elections. Plan on volatility.

Que sera sera. Whatever will be will be. The future’s not ours to see.” Which is why we have a process to exit back to cash when the current trend reverses back to the downside.

Continued claims are now down by 2.9 million in the past month.

The total number of continuing claims is 548% higher year to date, but the decline is a positive trend. If it continues, economic recovery data will improve though more slowly than hoped for.

Last week I mentioned Capital One’s across the board cutting of credit limits.

It may be due to their total credit quality risk though I have a report of the cut for an individual with a high credit score. If expanded to other banks, consumption will likely take a hit.

Monthly monetary velocity is falling. Again, as I have reported, the Preferred Dealer Network is sitting on the cash they have from selling Ts to the Fed. It is not being lent out.

The rate of money circulating in the economy is declining. Extending QE will more likely result in more stock speculation and begin raising inflation.

The Rule of 72 is used to calculate how long it will take for an investment to double given a fixed annual rate of return. (Divide 72 by the assumed rate of return to estimate how many years to double). Using a 5% annualized return, it takes about 14 years for equity investors to double their money. It takes more than 100 years for a 10-year Treasury investment to do the same and 900 years for cash.

The conclusion of my data is that market bias remains positive. When that changes, we will shift back to risk off as in previous declines and most recently, February. The market’s historic over-extended condition suggests that a larger-than-normal decline will become bear market 18.

Regards,

Don Creech
2323 Alaska Ave. E.
Port Orchard, WA 98366
360-620-8635