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You may have noted a bit less enthusiasm from investors last week. As mentioned here, the markets seemed to have been caught up in "too much, too fast" in their assessment of future gains. The four components of the SignalPoint Market Risk Indicator all rose in risk assessment with three now showing Caution as their signal. Here's how they look as of last Friday's close:
(A significant spike in speculative activity coincides with the inrush of capital)
(Confusion as to the markets' next direction shows here with very high Divergence)
(Stock Valuations have been in the Caution range for essentially all of 2024)
Summarizing all this cautionary signaling in the SignalPoint MRI, we see it rise two points to 37% suggested cash being held in reserve indicating 63% invested. The MRI "Oscillator" shows a very strong upward risk pressure of +10.
(The tail up end takes the MRI to the highest level in 2024 and the highest since early in 2022)
We see correlation in the v-Wave as well: (while not as strong an up-tick as we see in the MRI, the v-Wave is also in the "nervous" range)
Keep some MAALOX handy, we'll let these risky times pass.
Best wishes, OAG Tom
Buy from the Scared; Sell to the Greedy.....
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Some earnings reports and some flattening of the S&P500's upward movement helped to contain market risk as we head into Thanksgiving Weekend. SignalPoint's MRI comes in up one point at 38 with an Oscillator of +4. The Oscillator suggests there's still upward risk pressure while the MRI itself is well into its Caution range.
From Value Line's "Appreciation Potential" we derive the v-Wave risk indicator. It shows 34 for the 3-5 year outlook, down a point from last week but still in its own Caution range.
There's a cumulative effect of these indicators being in the Caution range. It's best shown in a histogram such as this: In this image we see the long trend of below median v-Wave while markets were down or flat being followed by nearly a full year of it being now above the median value and the extraordinary rise of the three indexes. Data from 1982 to Present show that these long trends should be heeded as being bullish or bearish. Think of accumulating risk as wear and tear on an investment machine. At 12 months above median risk, this machine is ready for a rebuild. Market Drivers aren't ready to pull into the Pits for maintenance at this point. Let's hope they're watching their temperature and oil pressure gauges!
As for my own activities, I've been following my Motto: "Buy from the Scared, Sell to the Greedy!" There has been a heavy emphasis on securing incremental sales of stock and fund inventories in recent months.
Best wishes, OAG Tom
Buy from the Scared; Sell to the Greedy.....
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November proved to be a pretty good month for my Equity Warehouse - at least the Domestic U.S. portion. Here's the results through the 1st 11 months:
International Style ETFs (21% Cash in Reserve)
Domestic U.S. Sector ETFs (17% Cash in Reserve)
10 Common Stocks Composite (17% Cash in Reserve)
Simple Growth ETF AIM Portfolio (19% Cash in Reserve)
Growth in value in the domestic portfolios was enough for some AIM directed selling and almost enough to keep Cash growing at the same rate as the overall portfolio. For instance, the simple Growth ETF portfolio grew 5.9% for the month of November and the cash held in reserve stayed at 19%. The big exception was the Sandbox portfolio which grew 11.4% during the month but the cash dropped in percentage from 20% to 17%. That was partly because there was both AIM directed buying and selling in that portfolio occurring during the month.
Now there's just a month to finish for Year 2024.
AIM for Portfolio Management, OAG Tom
Buy from the Scared; Sell to the Greedy.....
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Market participants' enthusiasm seems to have no bounds. New highs in the major market indexes are mundane because of frequency these days. I'm not complaining as this has allowed frequent inventory reductions in investment inventory as prices have been rising.
Not to be like the Grinch, but maybe more like Scrooge, there are measurable increases in stock/fund market risk that have come with the index's upward slope. The v-Wave 3-5 Year outlook is showing caution with a value of 34% suggested cash. For the 18 Month time horizon the v-Wave is far more cautious at 48% suggested cash held in reserve.
The SignalPoint Market Risk Indicator has similar posture with 37% cash reserve suggested. These values are unchanged from previous weeks. The MRI Oscillator is +3 showing only mild upward risk pressure.
Let's review the three main objectives of investors: A) Price Appreciation over Time B) Dividend Capture over Time C) Profitable Volatility Capture over Time........
Right now both the v-Wave and the MRI are showing lower potential for "A." Some are saying stocks are "priced to perfection" and won't stand much bad news at this point. With the higher share prices, we're also seeing lower current yields, so "B" isn't as good now as at other times. Value Line shows its dividend yield as being 1.9% currently. Its long term median is 2.2%, so the market isn't offering us very generous coupons to clip on new dividend investments. "C" looks to be where our efforts will be most rewarded in the near term should the markets consolidate or retreat from current levels.
We've had adequate opportunity to "sell to the greedy" during much of 2024 to build out our reserves of cash. Will 2025 be a year to "buy from the scared?" Our stock/fund inventory management method seems to be suggesting that could be in the future. But, remember that it takes more than a 15% discount from our most recent sale prices before we start to shift our cash back toward stock/fund inventory.
Best wishes, OAG Tom
Buy from the Scared; Sell to the Greedy.....
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I went to ~60% cash two days ago since this will be the 5th time in my life I've seen a substantial and unsustainable market bubble happening.
I have the the IRS Wash-Rule to think about for investing in January if I do for the small loss I'd like to write off, but basically I sold to lock in my gains for this year, which were substantial on a percentage basis.
Tax loss selling are eating those stocks up slowly and I expect more of that to come, save whatever Santa Claus seasonality rally that might happen before Christmas.
I expect volatility will be huge next month as Mr. Market goes parabolic yet again. I don't day trade or short, I leave that to the experts like Trader J, whom I've learned a great deal from over the years on SI and who has mostly moved on to the greener pastures at Reddit.
I also fly by the seat of my pants a lot in the markets, metaphorically, of course. I just like to watch the patterns and the pretty lights. :-)
Thank you for confirming with nice charts and graphs what I've been seeing.
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Long term v-Wave remained the same, 18 month v-Wave came down a bit. LT v-Wave is still 34% suggested cash where the ST v-Wave came down to 46% cash suggested.
The SignalPoint MRI rose this week as we see the indexes flattening out a bit. The MRI shows 38% cash suggested and a +6 MRI Oscillator indicating more steeply rising risk.
Both the MRI and the v-Wave cash levels are for diversified portfolios and not individual company stocks. Single stock risk would argue for multiplying the MRI and V-Wave values by 1.5x to be on the safe side.
Looking at these two indicators, it would appear the MRI has some shorter term aspects than the LT v-Wave, but not as short as the ST v-Wave. Studying the components of the MRI shows three of the four components rising in risk this week and one declining slightly. Three are currently in their own "Caution" ranges (a full standard deviation away from their medians) with one being neutral.
As we view just how far away each market risk measure is from its own "Proactive" range, we see this isn't a time to be speculating on new, higher risk investments. Both are suggesting it's a great time to keep some powder dry while we await better times for new money investing and AIM cash reserves shifting to the invested side. This week's 13 Week Treasury Coupon rate is 4.408% yield, which is more than two times the Value Line Dividend rate. So, maybe Cash isn't such a bad place to vacation while we wait for better investment weather.
I'm sorry I don't have anything more optimistic to report, but like on the old "Dragnet" TV show, I'm presenting "Just the Facts, Ma'am..."
Best wishes, OAG Tom
Buy from the Scared; Sell to the Greedy.....
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2024 Markets now seem similar to the Olympic "Clean and Jerk" weightlifting of 500 Lbs. Investors Have that barbell over their heads, but can they hold it there long enough? Do we see knees wobbling? Elbows quivering? Forehead veins bulging?
The SignalPoint Market Risk Indicator has been noticing all of these things.
Up one point this week to 39% suggested reserves of cash for diversified portfolios, it is under considerable strain. The MRI Oscillator comes in at +2 indicating slight upward risk pressure.
Our v-Wave market risk indicator could be considered 'optimistic' by comparison. It stayed unchanged at 34% suggested reserve cash for diversified portfolios.
Please note just how far each risk measure is above its own "Proactive" range. Have investors become conditioned to this high level of market stress and are ignoring the risks? With just a week until we close out 2024, it's still been a good year for investors. Many of the risk factors that were there at the start of 2024 are still in place here near the end. The Market Weightlifters are obviously well conditioned.
Merry Christmas to all,
OAG Tom
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Maybe a lot of folks lurk this thread and don't post. They just take the value of what you do here and invest in private. I wish I'd had that restraint decades ago when I first got on the internet, but oh well...
Since Robert Lichello's AIM program was the first thing I saw on a late night infomercial in the mid 1980's that truly looked like a great system, I bought his book back then but I didn't buy the program he created for the infomercial at the time, I wanted to research his system first to see how it worked. As you know Tom, It works very well over the long term. A proven way to capture market gains through its inherent volatility while managing the risk, and continuously.
> Have investors become conditioned to this high level of market stress and are ignoring the risks?
I don't know how people ignore indicators like AIM and the ones you've developed to keep pushing the market higher. I guess the hedge funds don't care because, well, the answer is it their collective name, they "hedge" against the market with derivatives of all kinds, and they have very deep pockets.
Mr. Market and his wrist rubber-band snap is going to be a painful one soon, no doubt about that. Aversion therapy at its finest for a new bevy of newer and inexperienced investors. The stock market always reverts back to historical PE Ratios, or PERs.
Like you, I thought the dot-com bubble might be a new paradigm too back around, eh, 1994 through 1999 when I worked in IT and as a consultant for a couple of failed dot-coms, but NOPE. What did I know on March 1 of 2000, right before the crash? Not enough, obviously. Looking back at the chart, the tech heavy Nasdaq was near a parabolic blow-off top, and that's exactly what happened starting on March 13, 2000. The low didn't come until over 2-1/2 years later in late October of 2002. The Nasdaq lost 78% of its value in that time and all of the gains it had made in the bubble.
Do I think we're in a speculative bubble of dot-com size right now? No, not even close. The dot-com bubble was propelled by hundreds of companies with no profits whatsoever and no hope of ever having any.
That isn't the case today. The very largest companies in all three major indices are highly profitable, so as many of the technical analysts have been saying, keep your money in those and use Dollar-Cost Averaging (DCA) to average down on large pullbacks unless you're a day trader.
Sell the speculative ones that have run up on too much hype alone, far beyond real value as measure by their PERs. TSLA anyone?
Check how much TSLA has run up just since October this year vs. the chances their profits will justify a PER of... 113+ as I write this. That's just one glaring example.
If historical patterns play out again, we're in the 3rd year of a speculative 5-year bull market where the first two years of the S&P 500 had over 25% returns in each. That's only happened 4 times in history. Only one time did the 3rd year have over a 25% gain. Yep, it was in 1998 during the dot-com bubble.
In the others, the 3rd year of the speculative bull was the toughest of them. For those Mr. Market's history shows overall performance for 2025 will be single digit gains at best to a boring 0% return for the S&P500.
Could the S&P 500 run up another 20% or more in 2025? Sure, but it isn't likely.
I do expect January to be a wild ride, with high volatility and sharp market index spikes. For Bitcoin and Nasdaq's unprofitable tech stocks most of all, but also with the Dow (DJI) and its near worthless short-term measure of stock market performance will be wild too because of its goofball price-weighting.
I'm introducing the MANANAM, a relevant index and acronym for the AI, tech and media (several are all three) stocks in it. It is also a palindrome as well because what goes forward reverses quickly and goes backward even faster on occasion. Why? Because Mr. Market is bipolar –– as you'll see if you're still currently unacquainted and haven't had time to read his Wikipedia entry yet. The names should be obvious here, so in no particular order they're Microsoft, Apple, Netflix, Alphabet, Nvidia, Amazon, and Meta.
MSFT, AAPL, NFLX, GOOG/GOOGL (D'OH!), NVDA, AMZN, and META., respectively.
Only three letters are used in its seven characters and they're essentially interchangeable. All of them together are driving our current market and responsible for most of the stock market gain for 2024, fueled by AI and Bitcoin mania along with the significant geopolitical risks of the very different planned economic policies of the incoming U.S. President.
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So....in conclusion, just replace the word night with January in the following video clip and it'll be a funny reminder and way to think about what probably isn't going to be funny at all for many U.S. investors soon.
We always need to hang on to our humor and sarcasm when dealing with Mr. Market, otherwise it's too painful to watch him do this again. :-) Bette Davis did have some amazing eyes, didn't she?
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Her voice, too, speaks as though she's a two pack a day girl, smoking only unfiltered Camels!!
The small setback we've seen in the indexes in the last week or so were enough to soften the high levels of market risk a bit, but not enough to create any broad buying opportunities as of yet.
Both risk indicators are still suggesting 33% to 36% cash liquidity right now as we head into the New Year. While my own portfolios aren't quite as liquid, they've done a remarkable job of building cash during 2024.
We're still a very long way from bargain basement deals. Our Market Weight Lifter is gonna have to rest a while.
I was talking with a friend recently and we were discussing whether CASH is an Anglo-Saxon Four Letter Word! During 2024 it seems that sidelining cash was missing an opportunity. However, that's only if we consider Cash's value vs turning it into risk.
I suggested that for any portfolio, cash can be an inexpensive insurance policy. While not a magic bullet, it does offer some cushioning during short term downturns. If nasty bear markets come along it offers its true value as portfolio insurance. It can be used to build out a portfolio during the times that markets offer better value.
We buy cars and houses and don't think twice about having insurance on those items. It's just a cost added to the ownership. Does Car Insurance prevent us from getting into accidents? Does home insurance prevent flooding, fire or other damage to the structure? As I said, insurance isn't a magic bullet. It's only there to help recover from unexpected damages.
During much of the first two decades of the New Millennium truly cash had very little value when sitting on the side. However, with the joys of Inflation came better yield on cash. Now the cash segment of our portfolios is at least pulling some of its own weight. It's earning at better than 2x the average yield on stocks right now. So, holding a portfolio of high priced stocks is yielding less than cash if that portfolio has stalled or has actually started to decline. I guess we can ask at those times, "How much would our total portfolio go down without the cash buffer?" I noted that since the end of November, my U.S. Business Sector ETFs portfolio has dropped 4.64% including its cash reserve. Without the cash, it dropped 5.59% on the "invested" side. So, the cash has provided its first benefit - acting as a buffer. It even went up in value ever so slightly.
Should the ETFs continue to lose value, eventually my AIM program will shift into Purchasing Mode. It takes between 15% and 20% decline from a previous share inventory reduction (incremental sales) before the program gets interested in spending any cash. Once that has happened, the second benefit of holding cash becomes apparent. Now I can rebuild share inventories in a proportional fashion as prices decline. That can continue as long as the cash holds out.
Where mutual funds and individual investors tend to hold the least amount of cash at or near market tops (see Norman Fosback's writings along with AAII) they also hold the greatest amount of cash at or near market lows. My M.O. has that inverted. I tend to hold the greatest percentage in cash nearer market tops and, on occasion, run cash to zero near market lows. In the recent 2022-2023 decline my Sector ETF portfolio drew down the cash by roughly half while buying up lots of shares. My smile would have been greater had the decline been larger and the drawdown complete to zero cash. Still, those new shares provided extra profit for the portfolio during 2024. Here's how that portfolio looks as of the end of November:
So, I'm again ready should the markets get funky. BTW, I use the Invesco "Equal Weight" sector ETFs for this portfolio.
I'm glad you've enjoyed my musings on market risk.
Best wishes for the New Year, OAG Tom
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Another year has passed by with nice improvement to our overall net worth. Of my various portfolios, the Simple IRA is the smallest of the accounts. The U.S. Business Sector ETF portfolio is the largest. They rank, Tom's Simple IRA - 1.4%, Tom's 10 Stocks - 9.7%, International ETFs - 22.9%, US Business Sector ETFs - 66.0%. Overall for 2024 the combination of these portfolios rose 9.8% after all expenses from a year ago.
I have boxes and boxes of these Day Timer weekly data from which the MRI and the v-Wave have been derived. What the heck should I do with them???
We're two days in to the New Year and so far, so good.
Best wishes, OAG Tom
Buy from the Scared; Sell to the Greedy.....
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