Weekly Cycle: Market Outlook for 07.02.2018

Weekly Cycle: Market Outlook for 07.02.2018

Each week, we review the stock market using a specific set of information sources in order to cut through the noise generated by media publishing attention grabbing headlines. Weekly updates give e the opportunity to play trends while not overreacting on a daily basis.

 

“The goal is not necessarily to “beat the market” but to manage risk and help investors survive severe market downturns.”

“In my mind, to turn trend-following into a strategy that works in the real world you have to figure out how to:

Keep turnover relatively low for cost and tax purposes.
Know how it generally works over a number of different market environments.
Make it rules-based to take emotions out of the equation.
Keep it liquid so you don’t ruin the diversification benefits.
Keep it simple because people have a hard time following and understanding complex approaches.1

My Evolution on Asset Allocation
Posted June 26, 2018 by Ben Carlson awealthofcommonsense.com

 

 

Market Performance

Performance of a handful of macro indexes, as well as index and ETFs on specific sectors of particular interest. 

Observations:

  • SPY slightly down over last week and last month
  • CQQQ down 9% over last month
  • Emerging markets [VWO & BKF] down over 8% over last month

 

Technical Indicators

Based on data and info from TradingView (Click for 30% off a pro subscription)

Scores based on the cumulative total of positive and negative technical indicators signals over three time horizons on Trading View. Scores are weighted by multiplying total as follows: daily (x 1) weekly (x 2), and monthly (x 3). 

Observations:

  • Most indexes show weakened indicators
  • VNQ (housing REIT) shows significant improvement
  • Tech [QQQ CQQQ HACK] much weaker

 

OldProf’s Risk Analysis

Each week, at the Dash of Insight blog, OldProf takes a look at a variety of sources to gauge overall market risk on both a short and long-term basis. He tracks a handful of indexes, economic indicators from respected sources, and volatility indicators. His weekly updates include a discussion of events with potential to effect markets, as well as general insight. Highly recommended reading.

This week, OldProf writes in Weighing the Week Ahead: Is it Time to Worry About 2020?

“Short-term trading conditions continue at highly favorable levels. Actual volatility was higher last week, but still below long-term levels.”

“Short-term trading conditions continue at highly favorable levels. Actual volatility was higher last week, but still below long-term levels. The VIX continues to overstate volatility. The decline in the rate for the ten-year note, coupled with lower stock prices, has made stocks even more attractive by comparison.2

 

StockTrader Recap

Mark Hanna publishes a weekly Market Recap full of charts and insight on news and market trends at StockTrader.

This week, Mark writes in Weekly Market Recap Jun 24, 2018 – StockTrader.com

“This was a second week of consolidation with generally good action in the Russell 2000 and NASDAQ.”

“Short term: The S&P 500 held its breakout level at just over 2740 – watch that number next week.   The NASDAQ remains quite strong.

 

Articles of note

“This report describes 20 flaws, biases, and causes of bad behavior I’ve seen pop up often when people deal with money.”

The Psychology of Money
Collaborative Fund

“People’s lives are a reflection of the experiences they’ve had and the people they’ve met, a lot of which are driven by luck, accident, and chance. The line between bold and reckless is thinner than people think, and you cannot believe in risk without believing in luck, because they are two sides of the same coin. They are both the simple idea that sometimes things happen that influence outcomes more than effort alone can achieve.3

“random chance has a powerful influence and failure of any kind is statistically followed by success.”

The thought father: Nobel Prize-winning psychologist Daniel Kahneman
Evening Standard

“One of the most amusing episodes in the book comes when Kahneman visits a Wall Street investment firm. After analysing their reports, he calculated that the traders, who were highly prized for their ability to “read” the markets, performed no better than they would have done if they made their decisions at random. The bonuses that they received were, therefore, rewards for luck, even though they found ways of interpreting it as skill. “They were really quite angry when I told them that,” he laughs. “But the evidence is unequivocal — there is a great deal more luck than skill involved in the achievements of people getting very rich.”4

“it could finally start to monetize the Groups feature that’s grown to more than 1 billion users”

Facebook tests ‘subscription Groups’ that charge for exclusive content
Josh Constine eCommerce – TechCrunch

“During the test, Facebook won’t be taking a cut, but because the feature bills through iOS and Android, those operating systems get their 30 percent cut of a user’s first year of subscription and 15 percent after that. But if Facebook eventually did ask for a revenue share, it could finally start to monetize the Groups feature that’s grown to more than 1 billion users.5

“a tariff on car imports from Mexico raises the cost of US auto production”

Trade War Costs in a Supply Chain World
Alex Tabarrok Marginal REVOLUTION

“a tariff on car imports from Mexico raises the cost of US auto production6

“Tesla’s capital needs will be even higher…with negative cash flows for the next 8 years, and $22 billion in new capital over that period.”

Twists and Turns in the Tesla Story : A Boring, Boneheaded Update!
Aswath Damodaran Musings on Markets

“Note that the median pre-tax operating  margin for auto companies is only 4.81%, with double digit operating margins putting you at the 80th percentile of all auto companies. It is also worth noting that among the ten largest auto companies, there is not a single one that generates an operating margin higher than 10%; BMW has the highest margin, at 9.89%.7

“Consumption weakness is the biggest risk I’m worried about. ”

Debate: What Will Trigger the Next Recession?
@conorsen Bloomberg.com

“weakness in the corporate credit sector would come about from growing bottlenecks in the economy. Consumption weakness is the biggest risk I’m worried about.8

“China and the world cannot function without Alibaba” $BABA

Alibaba Is A No Brainer
Jae Jun The Value Investing Blog of Old School Value

“Alibaba has built the economy to what it is now and has the backing of the government. It’s an unfair advantage that Alibaba has taken full advantage of. It comes with its own consequences, but the difference with Amazon in USA and Alibaba in China is that, should Alibaba shut down, China will be in chaos.9

“positive news usually does not attract viewers and readers to [media]; therefore receives much less attention”

A Little Perspective And Balance Would Be Useful
David Templeton, CFA The Blog of HORAN Capital Advisors

“as one looks at the economic, company level and consumer data, the positives currently outweigh the negatives at the moment. Unfortunately, positive news usually does not attract viewers and readers to the media publications; therefore receives much less attention from the media.10

 

 

 

  1. http://awealthofcommonsense.com/2018/06/my-evolution-on-asset-allocation-2/
  2. https://dashofinsight.com/weighing-the-week-ahead-is-it-time-to-worry-about-2020/
  3. http://www.collaborativefund.com/blog/the-psychology-of-money/
  4. https://www.standard.co.uk/lifestyle/london-life/the-thought-father-nobel-prize-winning-psychologist-daniel-kahneman-on-luck-9199162.html
  5. https://techcrunch.com/2018/06/20/facebook-subscription-groups/
  6. http://marginalrevolution.com/marginalrevolution/2018/06/trade-war-costs-supply-chain-world.html
  7. http://aswathdamodaran.blogspot.com/2018/06/twists-and-turns-in-tesla-story-boring.html
  8. https://www.bloomberg.com/view/articles/2018-06-29/next-u-s-recession-will-be-triggered-by-something-unexpected
  9. https://www.oldschoolvalue.com/blog/stock-analysis/alibaba-no-brainer/?source=rss
  10. https://disciplinedinvesting.blogspot.com/2018/06/a-little-perspective-and-balance-would.html

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