Call Us

561-771-8077

Fiduciary

Jan 21

OBJECTIVELY MANAGING RISKS

The stock market inched its way to new all-time highs this past week, as investors continue to exhibit an absolute conviction that good economic times are here to stay. Complacency, extreme bullish sentiment readings, and fear of missing out on the rally remain the order of the day. This situation reminds me of the old stock market cliché that says: “The stock market can remain irrational longer than you can remain liquid”. The status quo may continue, but in this business of managing financial risks to client wealth bullish extremes often appear toward the end of bull legs, and bearish extremes tend to appear near the end of bear legs.

Alexander and I are in the risk management business, and we do not attempt to forecast future movements of the price in the stock market. We will leave stock market predictions to those, which believe they have the requisite skill, talent and expertise, to be successful at that most difficult of arts. However, objectively measuring the ever changing balance of supply and demand in the equity market, and then setting those measurements into a historical reference is something we do routinely with proprietary indicators designed specifically to account for the ever changing balance of supply and demand created by countless transactions on the NYSE, and in the global derivative markets.

Human nature tends to repeat in the crucible of the stock market, and this makes comparison of objective measurements of human nature in action over time in the markets a worthwhile, and potentially profitable exercise. So today, very likely well in advance of a major stock market top, I’m going to briefly describe how the next major top will likely form vis-à-vis the tools we share with clients every week. I will bring you up to date on the current status of these supply and demand tools in the two sections to follow, and at the end of each section I’ll describe how these tools will likely configure their readings during a routine correction to re-invigorate demand, and/or how these tools will likely configure themselves as the next major top builds out. At this point, history suggests there will be at least one (or more) corrections prior to the formation of the next major top.

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow with the S&P-500 cash index overlaid in red and blue candle chart format. TATY finished the week up a bit at a strong 154. However, TATY continues to paint out a negative divergence with the price, which is touching new all-time highs. Negative divergences almost always result in the price entering a correction, but not always. Demand can gather strength during negative divergences, which can erase the divergence, but these events tend to be rare. Once buyers fatigue sets in, which appears as the negative divergence, that fatigue tends to go to completion in the form of a correction to set up lower prices, which in turn stimulates investors to act on their latent desire to buy at what appears, in the light of recent history, to be bargain prices.

In environments of bullish extremes like currently, corrections may appear to come out of the blue, and may be quite uncomfortable and nasty, but fleeting. History suggests investors may encounter just such a price decline during the first quarter, or as the positive seasonal bias begins to wane around Easter. As long as the next significant price decline results in a corresponding bottom in the TATY indicator in, or close to, the red zone surrounding the 140 level, then we shall treat such a decline as a potential opportunity to put excess cash to work. A price decline with a corresponding configuration in the TATY indicator would strongly suggest a continuation of the bull trend, and possibly renewed assaults on new all-time highs.

However, a price decline strong enough to drive TATY readings into the caution zone surrounding the 115 level would be a warning to Alexander and I that the dynamics of the supply and demand balance may be changing enough to compel us to consider, or even take defensive action in client portfolios to protect accumulated profits, and/or protect client wealth from risks rising to levels, which may not be prudent for conservative investors. The chart gymnastics required for the supply and demand indicators to complete the requisite patterns would likely take weeks, so in the near term we shall investigate declines as opportunities to put excess to work with lower risk entries.

 

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above in the second chart alone, and below with the SPXL 3X S&P-500 ETF overlaid. The SPXL three times leveraged S&P-500 ETF is for reference only, certain quirks related to its derivative construction can result in tracking errors with its S&P-500 benchmark over time.

SAMMY has one purpose in life, which is to identify re-surging demand after sellers have exhausted their propensity to sell. Exhausted sellers are a necessary condition for a significant stock market bottom, but not a sufficient condition. To complete a bottoming process there has to be evidence of exhausted sellers, which is followed in a reasonable amount of time by evidence of re-surging demand. When both conditions are met, the probability of a new bull leg developing is extremely high. SAMMY is virtually worthless once it has signaled re-surging demand. So for now with a rally underway for weeks, SAMMY is shown for information only, and is of little value. However, as the next significant bottom forms, SAMMY will likely become critically important to us as a risk management tool for getting clients significantly more invested in stocks. At that next significant bottom I expect SAMMY to leap higher while painting out a bar on its chart completely above the previous bar. SAMMY looks like it has been shot out of a cannon when investors return in size, even as the price often is making new lows.

THE BOTTOM LINE

Timing the market is not part of anything we do at Optimist Capital, as we are strictly risk managers. However, in this update days, weeks, or possibly months before the next significant event in the stock market, we have described to our clients what we will do to manage the risks to your wealth, and how we will do it using objective market generated information from the NYSE, and the derivative markets. Opinions are subjective, and rife in this business, and tend to cause confusion, so all our actions are the result of taking into account what the markets are telling us about themselves through the objective information they generate. That information is then put into a strategic plan, which is implemented with the application of a tactical plan. This approach has been shown over time to allow us to grow wealth while minimizing risks. So now our clients know likely well in advance of us taking any actions what we will do, and how we will do it, in order to grow your wealth with the least risks possible.

 

DISCLAIMER : Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Jan 6

Pragmatist Versus Manager

Decades ago one of my Georgia Tech professors was making a point about managing a business, when he related the following anecdote after a class mate described himself as a “pragmatist”.

A certain school system was searching for a replacement for its retiring superintendent. A member of the board lobbied for a well-known and popular candidate already employed by the school system, which had an outstanding record as a pragmatic problem solver. Another candidate with a strong resume’ as a management professional was eventually passed over, but was then hired by a competing school system known to be having serious problems. My professor then asked the class whom they would have hired. After some discussion, the class served up the answer the professor said should be obvious.

Management Science teaches POC, which translates as the three management functions: Plan, Organize and Control. The professor went on to say that the pragmatist encountered few difficulties early on in his tenure, as his predecessor had planned well, and had retired with his school system in very good shape. However, as time passed the pragmatist began to be over run with problems to solve, because he was a particularly poor planner.

The passed over candidate encountered immediate, and serious, difficulties early on at the competing school system, as his predecessor had left under pressure from his board for poor performance. However, as time passed the professionally trained manager was able to implement his plans for the system’s future, re-organize his staff and teachers with very talented and dedicated people. And, he brought the initial chaos under control with procedures designed to gain and maintain management control system wide. The professor finished by saying that pragmatists will always have plenty of problems to solve, but professionally trained managers are responsible for planning, organizing and controlling organizations in a manner, which minimizes problems.

So what is the point of sharing this classroom anecdote?  Alexander and I are charged with the fiduciary responsibility of maintaining, and growing, your wealth with as little risks as possible. As part of our responsibility we must plan ahead for financial developments of the negative kind, which may adversely affect your portfolio. Over the past many weeks we have been mentioning the possibility that 2020 may be a year of increasing volatility, and the attendant risks and opportunities inherent in an environment of rising market volatility. Well 2020 is upon us, and so far the environment is one not of volatility, but complacency on an epic scale.

Weeks on end of a creeping bull trend and (marginal) new all-time highs has seemed to inoculate investors from even the suggestion that financial risks still exist. In fact, this re-enforcement of the bull belief system is understandable after the completion of a decade without a recession, and the longest equity bull run on record. After a decade of this record setting bull trend is the stock market finally ready to put on a demonstration the late Paul Desmond’s observation that “low volatility begets high volatility, and high volatility begets low volatility”? The current complacency of professional investors would seem to suggest extraordinary vigilance will likely be a prudent plan in 2020.

We are not in the predicting business, as we prefer to leave that most difficult of arts to those, which claim to have that talent. However, we expect our proprietary market tools to perform successfully during a continuing bull trend with attendant low volatility, if the stock market serves up that kind of environment in 2020. Or, even better performance would be likely, if the market turns bearish with a vengeance, as there will likely be opportunities to buy at discounts to value, as a newly minted bear would destroy the wealth of buy and hold investors. You see we believe in planning and organizing in advance, so we can be in control before the market serves up its next big move, bull or bear!

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow with the S&P-500 overlaid in red and blue candle chart format.

TATY finished the week at 149 down a bit more from last week in spite of the price touching new all-time highs. The negative divergences (down sloping orange lines on the TATY chart) mentioned over the last several updates remains in place, which suggests the bid under that market remains strong enough for the price to attempt assaults on new all-time highs, even as demand continues to wane. However, with TATY just now entering the red zone surrounding the 140 level, the bid under the price may still have enough residual strength to drive the price toward another all-time high, but do not count on it, before a decline strong enough to re-invigorate demand arrives.

As long as TATY continues to make BOTTOMS in, or near, the red zone, then the price is likely to continue attempts to assault new all-time highs. A decline in the TATY indicator strong enough to paint numbers into the caution zone surrounding the 115 level would likely be an early warning that supply was beginning to overtake demand. Such an event would likely take weeks to develop, and would cause Alexander and I to consider having to make defensive adjustments to portfolios. A TATY decline in the neighborhood of the red zone, which is followed by a SAMMY tactical buy signal would be investigated as a possible buying opportunity, subject to objective confirming evidence.

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown in the second chart above alone, and below with the SPXL 3X leveraged S&P-500 ETF overlaid. The SPXL three times leveraged S&P-500 ETF is for reference only.

SAMMY excels at identifying resurging demand after sellers have exhausted their propensity to sell. However, during sustained rallies SAMMY is of little value. It is shown in this update for information only.

THE BOTTOM LINE

The new year 2020 has arrived with evidence that professional investors are very complacent about the prospects for the continuation of the record setting bull market in stocks. Complacency has resulted in disappointing results in the past, and may again given the longevity of the recovery post-2009. However, complacency is a very blunt market tool, which requires confirmation from other more accurate indicators to confirm danger to investor wealth may be on the rise.

We have several new accounts mostly in cash coming over to us. We shall get these accounts invested as low risks opportunities are identified by our proprietary indicators. Recent declines have been shallow and intra-day fleeting, which makes putting excess cash to work in a low risks circumstance very challenging. However, with the advent of this new year there have also been some increasing signs that volatility may be on the increase, and may become a more significant factor as the positive seasonal from roughly Halloween to Easter begins to wane, as the calendar marches toward Easter?

Alexander and I wish all of you a very Happy and Prosperous New Year!

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Dec 16

Facts Versus Beliefs

My late father, Haywood Adams, was a member of what Tom Brokaw wrote about as “The Greatest Generation”. Daddy once admonished me to “never attempt to argue facts with a person’s beliefs, because their beliefs will always trump your facts”. Daddy, having grown up poor and seriously under-educated in rural Ochlocknee (Georgia) during the Great Depression, was nonetheless admired for his wisdom. Webster’s Dictionary once defined wisdom as “applied knowledge”, and Haywood Adams excelled at the application of what he knew, which is why I suspect this quiet, and wise man, has three generations which also bear his name; Gregory Haywood, Caroline Haywood and Pace Haywood. I suppose it is natural this time of year for our minds to remember those, which have had a profound influence on our lives, and as the drama in the Congress played out this past week, I was reminded of Daddy’s observation. The real struggle in politics is always about power, and that struggle was on public display this past week in the people’s House as one party argued facts, and the other stridently argued their beliefs. So for only the third time in our country’s history the House has voted out Articles of Impeachment for a sitting president, and yet the stock market simultaneously touched new all-time highs in the popular indexes. And, the current balance of demand remains in the superior position to supply according to our proprietary indicators.

Financial institutions spend countless millions of dollars on research, when the stock market is actually driven by investors beliefs about future expectations, which are extremely difficult to ascertain. I once knew a professional money manager, which regularly attended the daily investment committee meetings I chaired. When I was hired away by another firm, I was disappointed that I would no longer have this long time pro in the meetings I would be chairing at my new firm. You see this gentleman had to be convinced by copious facts before he could become comfortable enough to buy, or sell, in size for clients, which almost invariably resulted in him buying close to tops, and selling close to bottoms. He was often a wonderful “tell” that a turn in the market may be at hand. He never really became comfortable with the notion, that the stock market discounts the future, and is driven not by the facts of what is known, but by beliefs about future expectations. The gentleman has lots of company in this challenging business of managing opportunities and risks for clients, which is too dominated by those excelling at relationship building, and other pros with the requisite experience, proprietary tools, and skills to produce superior risk adjusted returns not so much.

Daddy knew how to fight the Japanese during his four beach landings over four years of island hopping in the Pacific. He knew how to lead his men to drain and repair flood prone tropical runways while under enemy attack, so our war planes could land, which in many cases had already departed their carriers at sea. This was no small task, since there was no piping available for the drains, so he innovated by putting ordinance crews to work using primer cord to cut out the heads and bottoms of empty 55 gallon Avgas drums, and another crew to work welding the drums together into large pipes for the make shift drains.  He knew how to lead a small group of volunteers to get an artillery piece backed up a mountain with a bulldozer, and in place in time to take out a large Japanese rail gun hidden in an opposing mountain. The previous artillery crew had been wiped out, when the Japanese got off the first round. Having found the previous artillery crew’s over and short “book”, when the Japanese gun began to emerge from its protective tunnel, it was greeted with a round that found its mark. That operation, executed under the cover of darkness, earned him the Bronze Star, although he never talked about it. He never knew his observation that beliefs trump facts, would also be applicable as a key to understanding one of the nuances of successful investing. The wonderful thing about wisdom is it often plays well in multiple venues.

So what is the point of this bit of unique history, and what does it have to do with your investments? The answer is, as it has been for quite a while now, is to ignore the evening news regardless of how bad it may become, and ignore the rich valuation of the stock market, as long as the beliefs of investors continue to drive numbers in our proprietary supply and demand indicators, which show that demand remains stronger than supply. The law of supply and demand is the only absolute in this business of managing opportunities and risks, and supply and demand is driven by beliefs about the future, which will always tend to trump facts.

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow with the S&P-500 index overlaid in red and blue candle chart format.

TATY finished the week well above the red zone surrounding the 144 level at 153. As long as TATY paints out BOTTOMS in, or near, the red zone the odds will remain favorable for additional attempts to assault new all-time highs. However, investors should note that the negative divergence (orange down sloping line) between the indicator and the price remains. Negative divergences can linger for weeks before the price responds in the negative, or alternatively negative divergences can simply disappear as a response to strengthening demand. The rally is overbought and extended, so a decline to re-invigorate demand would be plus in my view, and perhaps an opportunity to put excess cash to work in equities. Unless the divergence grows sharply more negative quickly, then investors may reasonably expect more assaults on new all-time highs.

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown in the second chart above alone, and below with the SPXL 3X S&P-500 ETF overlaid. The SPXL is for reference only.

SAMMY has an enviable record of identifying resurging demand after sellers have exhausted their propensity to sell. Please note that so far this tactical indicator is also displaying a negative divergence to the price. The negative divergence is shown on the chart as a down sloping orange line. The divergence may disappear, if demand grows stronger and supply weaker, but for the time being both the negative divergence in the family of strategic and tactical indicators need to watched carefully for signs that the divergence between the price and the indicators may be growing more critical.

THE BOTTOM LINE

Given the current balance favoring demand over supply, investors can reasonable expect more attempts to assault new all-time highs, unless the nominal negative divergence on both the tactical and strategic indicators grows more serious. As long as our supply and demand indicators continue to favor demand over supply, then investors may continue to ignore the cacophony of daily negative news, and the increasingly rich valuations of stocks, because investors are acting on their beliefs that the economic future is bright, and not the history and facts, which suggests growing threats with the potential to cast long shadows over the ongoing longest economic recovery on record.

All of us at Optimist Capital wish all of you Happy Holidays with family and friends.

 

Regards, DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Holiday Village
Dec 9

RUN AWAY BULL?

Last week’s update was on the topic of “the pause which refreshes”, and advised investors to not be surprised, if the stock market encountered some weakness in the range of 3 to 8% before assaulting new all-time highs. On Tuesday the Dow plunged over 400 points intraday, and appeared well on the way to a much needed consolidation, or brief correction. However, by Friday’s close the popular stock indexes had recovered to slightly below new all-time highs leaving those of us with some cash needing to be invested a bit frustrated that the very brief decline did not give us a classic buying setup vis-à-vis our proprietary indicators. We prefer to be buyers when measurable evidence of exhausted sellers is followed by resurging demand. And, which is also confirmed by measurable evidence that the price has been compressed below “value”, which in turn creates a very low risk buying opportunity.

In strong bull trends corrections tend to be shallow and brief, which has the effect of not allowing would be buyers an opportunity to join the bull party at a significant discount. Stock market psychology is a bit upside down in that rising prices tend to create more buyers, when in other disciplines it tends to take declining prices to attract larger pools of buyers. It is not unusual in the history of the equity markets for bull trends to accelerate as prices rise, and in some cases this acceleration phenomenon can sometimes result in what is known as blow off tops at very elevated valuations, as buyers finally exhaust themselves.

We are not in the predicting business, as we prefer to leave that very difficult exercise to those, which believe they have the ability to know the future. However, this past week’s almost instantaneous encounter with motivated buyers after such a shallow, and brief dip in the price, makes me inclined to take into account the possibility that this record setting bull trend may have a strong enough residual bid under it to power an acceleration higher, the news and rich valuation be damned? Please note that taking into account a possibility is not the same as stating the probabilities favor such an outcome.

Objective measures of the balance of supply and demand continue to favor demand over supply, so yes the probabilities continue to favor assaults on new all-time highs, but at this point the notion of an accelerating bull trend higher is just one of a number of possible pathways to new all-time highs.

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in the first chart in yellow with the S&P-500 overlaid in red and blue candle format.

TATY finished the week at 154, which is well above the red zone surrounding the 140 level. As long as this strategic indicator paints out BOTTOMS in, or close to, the red zone the bull trend is likely to continue to attempt new all-time highs. An excursion by this indicator into the caution zone surrounding the 115-125 level would be our first warning that the balance of supply and demand may be changing enough to cause supply to over take demand. If this condition was met, and then followed by the completion of a “Big Chill” warning setup, then Alexander and I would be compelled to consider taking defensive action to preserve accumulated profits, and/or protect client wealth from rising risks of a significant decline, or in the extreme a budding bear market.

Please note that the premium/discount indicator shown in the lower panel of the TATY chart was not driven much below the zero line by this past week’s shallow, and brief decline. Low risk buying opportunities are defined by the premium/discount indicator being driven below the minus eight level (red line) and then beginning a recovery back to the minus three level (green line), and then on to above the zero line. When this condition is met, and the SAMMY tactical indicator shows evidence of resurging demand, often a very low risk buying opportunity has arrived. As my former friend and mentor, Paul Desmond of Lowry Research, used to opine bottoms require evidence of exhausted sellers followed by evidence of resurging demand. In the current case Tuesday’s decline was so fleeting that it never painted out the required setup for us to deploy all the new cash coming into our firm.

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above alone, and below with the SPXL 3X leveraged S&P-500 ETF overlaid. The SPXL is used for reference only.

SAMMY is interesting this week. TATY failed to paint out the conditions we needed to be buyers, as the premium/discount indicator never got anywhere close to a significant discount to value, but SAMMY did register some evidence of resurging demand. And, as a counter-balance to the possibility of an acceleration higher, SAMMY developed a big negative divergence with the rallying price as the week wore on. Careful inspection of the SAMMY chart shows the SPXL ETF nearly touching a new high, like most of the popular stock indexes, but the SAMMY indicator is not even close to its previous high. This is called a negatively diverging indicator to the price. Investors want the price confirmed by indicators, not the indicators negatively diverging as SAMMY is in the current case.

This condition suggests Tuesday’s plunge may be just the first leg down in a “flat” or “irregular” correction, which needs another leg down to complete the correction at, or marginally below Tuesday’s low. Yes, it really is complicated in the short term, but not in terms of the big picture, which is the odds favor new all-time highs soon, or after the completion of another leg down in a shallow correction. Investors should be aware that if there is another leg down to come in an ongoing correction, then it is likely to be quite nasty, violent and fast. A nasty, violent and fast leg down would likely create the conditions we need for a low risk buying opportunity, so if between now and the end of the year the market literally looks as if it is “falling out of bed”, then please do not be concerned, as what is actually happening is opportunity disguised as a brief panic, perhaps in reaction to some news driven event. This kind of situation would likely purge any would be sellers from the investor mix, and give the buyers a chance to tighten their grip on the stock market.

THE BOTTOM LINE

While the road to new all-time highs may take some unexpected twists and turns, the balance of supply and demand still favors demand over supply, so the odds are favorable that the stock market is on the road to new all-time highs late, or soon.

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Dec 2

TIME FOR A PAUSE WHICH REFRESHES?

Recent updates have advised investors to ignore the steady drumbeat of bad news, because our objective measurements of the balance of supply and demand for stocks favored demand over supply. As long as demand remains in the superior position to supply the price will likely continue attempts to assault new all-time highs, regardless of the negative trending evening news and/or historically rich valuations for equities.

Warren Buffett, who made his name as a Graham and Dodd value investor, has recently been in the news, because he nixed a take over deal for a tech company over concern that the bidding had become too rich. He is also rumored to be sitting on more than one hundred billion in cash, because he finds little “value” in the stock market. His concerns definitely apply to buyers of individual equities, but we are index ETF investors, and indexes usually continue to rise after valuations have become rich by historic standards, because institutions tend to put cash into the stock market as soon as it is received. This institutional investing bias tends to be good for them, but not so much for their investors unfortunate enough to arrive near a bull market top.

The stock market is up over twenty percent this year, so a pause to refresh and re-invigorate demand should not come as a surprise. The sudden appearance of a budding bear market would be a surprise, as the current balance of supply and demand for equities still favors demand over supply making the sudden appearance of a bear market a relatively low probability, Mr. Buffett’s angst notwithstanding.

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY finishes the week at 150 a bit off its peak reading of recent weeks, but still well above the red zone surrounding the 140 level.  TATY is shown in the first chart above in yellow with the S&P-500 overlaid in red and blue candle chart format. As long as TATY continues to paint out BOTTOMS in, or near, the red zone assaults on new all-time highs will remain a viable probability. An excursion into the caution zone surrounding the 115-125 level would be the first sign that the balance favoring demand over supply may be changing. A follow on issuance of a “Big Chill” warning would likely be a call to action to protect accumulated profits, and/or wealth. The required market gymnastics to paint out a “Big Chill” warning would likely take weeks to complete.

The bottom line for this section is TATY has backed away from its recent highs, but continues to confirm that demand remains in the superior position to supply.

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above, and below with the SPXL 3X S&P-500 ETF overlaid. The SPXL three times leveraged ETF is for reference only, due to its leverage, and certain quirks related to its construction, which may cause tracking errors against its benchmark over time. SAMMY has an outstanding record of identifying resurging demand after periods when sellers have exhausted their desire to sell. SAMMY is of little value otherwise, as so far I’ve not found it particularly useful in warning of impending tops. Consequently, SAMMY is shown above for information only, but it will become extraordinarily valuable again following the next decline in which sellers become exhausted.

THE BOTTOM LINE

The stock market is extended, overbought, and due for a pause that refreshes. However, unless measures of supply and demand shift swiftly and significantly, then investors may reasonably expect more attempts to assault new all-time highs in the days, and possibly weeks to come, regardless of how negative the news, or how rich valuations become. The news, nor valuations, determine the price level of the stock market, as the price is determined by the absolute bedrock of the capitalistic system, which is the law of supply and demand. Currently our proprietary measures of supply and demand continue to favor demand over supply.

If a pause to refresh and re-invigorate demand does occur, and if this pause takes the price down say in the 3-8 percentage range, and during which a new SAMMY buy signal is issued, then we will be prepared to put new cash, and/or excess to work in the equity market on our own terms. We have entered what is historically a seasonally favorable period of weeks, so we shall be inclined to act on any SAMMY buy signal following evidence of the price having declined below “value”, sellers having become exhausted, and resurging demand triggering a SAMMY buy signal. Such a series of events would suggest a new leg of rally was getting underway. Which has the potential to reward equity investors regardless of the negative news, and/or rich valuations.

HAPPY HOLIDAYS!

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Nov 25

SOME ECONOMIC HISTORY YOU MAY NOT KNOW?

In late September 1977, my new bride and I began an extended Honeymoon trip that would take us to Atlanta, New Orleans, Las Vegas and then on to stops in San Francisco, Monterey, and finally a grand tour down the beautiful Big Sur coast highway to San Luis Obispo, and a return back to San Francisco up through the California valley. We visited the Hearst Castle in San Luis Obispo, where the tour guide remarked that everything, which looked like gold was gold, including the faucets in the bathrooms, and the fixtures in the huge swimming pool. William Randolph Hearst was so wealthy that he had full grown trees floated in on barges, transported to the Castle, and then re-planted, because he knew he would not live long enough to see newly planted trees reach maturity.

Hearst had made his fortune in the newspaper business, and re-invested his initial wave of wealth in thousands of acres of seemingly low value real estate, upon which there was soon discovered vast deposits of oil, and later uranium. Hearst became immensely wealthy during a period in United States history, when there was little taxation. This was the time of the so called “Robber Barons”. Among Hearst’s eccentricities was his dinner parties at the Castle, the invitations to which were highly coveted. Hearst would invite notable guests of the time with different views to sit opposite each other at a huge dinner table overlooking the Pacific Ocean. The highly animated conversations which followed were of intense interest to the newspaper man, and was one way he was able to keep his finger on the pulse of the times.

According to the tour guide, arising out of one of these debate like dinner parties, Hearst became an advocate of the graduated income tax system. He declared that is was not in the best interests of our country for anyone to ever amass the incredible wealth he, and a hand full of others, had accumulated. He believed that such a concentration of wealth came with a byproduct of power and influence, which he feared would likely be abused. Hearst then applied his own power of the press to advocate for a graduated income tax system, and other wealth tax reforms.

Hearst believed democracy requires a broad and strong middle class, and an educated and well informed electorate to survive. A case could be made that the lack of one, or both, of those two requirements has led to many failures of would be democracies in Latin American down through the decades. In many Latin American countries the nation’s wealth is owned almost entirely by just a few very powerful families, and too little of the population is educated, and/or well informed. As Helen Fortney, my high school civics and social studies teacher, once said: “In a well-functioning democracy the political pendulum swings back and forth, but the democratic process survives and adjusts with the times”.

Given the current wealth and political divide in our country, and the emerging and imminent natural takeover of our institutions by a new generation, I am fascinated that the leading candidates for the up coming presidential election are all in their seventies. The country is on the cusp of so many generational, and demographic changes, that an objective analyst may conclude that at least one representative of a younger generation would be leading in some of the polls. Perhaps that brewing storm of generational, and demographic change, will emerge in a later election cycle, but the evidence grows that perhaps the pendulum may be reaching another extreme, just as it did when Hearst was moved to action. Stay tuned!

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow and the S&P-500 is shown overlaid in red and blue candle chart format.

TATY finished the week at a strong 155 level. As long as this big picture indicator continues to paint out bottoms in, or near, the red zone surrounding the 140 level, periodic assaults on new all time highs will remain likely. When TATY is making bottoms in the red zone demand is in the superior position to supply. The law of supply and demand determines the price regardless of market valuation, which in the current case is not cheap, or the news. If one had taken the news into account, then most clients would have been in cash several thousand Dow points ago. The news may very well grow worse, it really is a dangerous world out there, and there is a big election looming on the horizon, which will no doubt be lucrative for the folks delivering all those attack ads to come.

TATY is an objective measure of the balance of supply and demand generated by the only source, which is really worth anything  —  the stock market itself. If you want to listen to opinion, then listen to the evening news. If you want to know the facts about how all the opinions of the market participants have resolved themselves into aggregate action, then watch our objective strategic and tactical indicators.

TATY continues to signal demand is in the superior position to supply, so we expect an upward drift, and an occasional assault on new all-time highs along the way. The stock market is entering the holiday season, which in the past has translated into low volume dull market behavior. The political arena may be interesting these days, but I suspect the upcoming holiday period in the stock market may be typically dull?

SAMMY   —   A REPRESENATIVE OF A TACTICAL FAMILY OF SUPPLY AND DEMAND INDICATORS

SAMMY has an enviable history of identifying re-surging demand following a period when sellers have exhausted their propensity to sell. As such SAMMY is of little value during a period of extended rally, as is the current case. SAMMY is shown above alone, and below with the SPXL 3X S&P-500 ETF overlaid. The SPXL leveraged ETF is for reference only.

THE BOTTOM LINE

Historically the Holiday Season is a low volume and listless trading period for the stock market. The current conditions in the balance of supply and demand suggests that the price is likely to attempt more assaults on new-all time highs. However, these new assaults on all-time highs may be achieved on low volume, and as a product of a dull and listless drift higher. There have been many new highs over these last many months, but the stock market’s overall gain during this period has been less than satisfying given the anemic relative net gain. For example, take a look at the S&P-500 in September of 2018 as shown on the first chart above versus Friday’s close, which is less than two hundred points higher!

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Nov 18

ADVANTAGE BULL

Last week’s update drew investor’s attention to the positive seasonal bias at work roughly from Halloween to Easter most years in the equity market. Studies have shown that this span of weeks has contributed almost all of the accumulated gains in the stock market over the last one hundred years or so. And, the period from Easter to Halloween has contributed almost nothing to the gains over the same period. The recent performance in the market, including this past week’s new all-time high on Friday, has once again contributed to this tradition of seasonal outperformance.

Given the very positive readings on an array of objective supply and demand indicators, the weight of the evidence continues to favor demand over supply. So, the seasonal bias, and the balance of objective measures of supply and demand, favor the stock market touching new all-time highs in the days, and possibly weeks, ahead. As long as the balance of supply and demand remains favorable toward demand over supply, then we will use periods of weakness as opportunities to put cash coming in from new clients , or excess cash in existing client accounts, to work in equities; regardless of how bad the news may become, or how unreasonable valuations may become. Neither the news, nor valuations, determine the price level of the stock market. The price is determined by the law of supply and demand, the only absolute in economics. Currently the balance of supply and demand, as measured by our proprietary indicators, favors demand over supply.

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow with the S&P-500 overlaid in red and blue candle format.

TATY finished the week at a strong 156, and rising. As long as this big picture strategic indicator is painting out BOTTOMS in the red zone, investors may reasonably expect the stock market to have a positive bias, and enough residual demand to power periodic attempts to assault new all-time highs, in an ebb and flow type behavior. These attempts are likely to continue until TATY paints out a “Big Chill Warning”, which will likely become the first objective evidence that the balance of supply and demand may be shifting in favor of supply over demand.

Big Chill warnings have been highly effective at alerting investors to rising risks in the equity market, and at issuing warnings timely enough for investors to take action to protect accumulated gains, and/or their wealth. No indicator is perfect in this business of risk management, but of all the major top identifying methods I have studied over the decades, TATY is the indicator with the best record by far. Major tops are a gossamer like euphoria diffusion process, which is extremely difficult to measure objectively, which in turn makes it difficult to determine the price level at which market risks to invested capital may have become critical. TATY has a decades long record of identifying levels at which equities may have become vulnerable to the onset of a substantial correction, or outright bear market. Unfortunately, I’ve discovered no method in decades of searching, which can tell us in advance, if a correction may turn into a bear market, or if a nominal bear market may turn into major bear market.

Fortunately, our inventory of supply and demand indicators include some like SAMMY, which have a proven record of measuring and identifying resurging demand. These have a record of announcing the end of corrections, and/or phases of bear markets, or the completion of a major bear market in equities. This information then becomes critical to the decision to re-deploy cash as price declines are ending.

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above.

SAMMY has earned an outstanding record at identifying resurging demand following substantial declines, corrections, and/or bear markets. Tradable low risk bottoms require evidence of exhausted sellers followed in short order by evidence of resurging demand, as investors rush back in to the stock market to scoop up perceived bargains. Our premium/discount indicator, located in the bottom panel of the TATY indicator, and the price charts, has an enviable record of identifying levels at which sellers have exhausted their propensity to sell. Once this has occurred the risks to further decline drops precipitously, as those wishing to sell have already done so leaving few, if any, sellers to drive the price any lower. This is the level at which SAMMY earns its stripes by objectively providing evidence that buyers are re-entering the market in size, which registers with SAMMY as resurging demand.

Once the resurging demand process is underway, the price has very likely reached a turning point. And, while the newly formed price bottom may be “tested” at some point, the objective evidence of exhausted sellers followed by evidence of resurging demand sharply increases the odds that the decline, correction and/or bear market has ended, and a tradable low risk bottom has arrived. Obviously these low risk tradable bottoms are relatively rare wealth building events (a few times a year perhaps), and are ideal price levels for cash to be put to work in equities with relatively low risks.

SAMMY is a supply and demand tool for confirming low risk bottoms, but otherwise is of little value. SAMMY is currently in rally mode with the price, so it is shown in this update for information only. However, upon the arrival of evidence of exhausted sellers during the next substantial decline, SAMMY will become an essential tool for identifying the next low risk tradable bottom. Given the positive seasonal, and the current favorable balance of demand over supply, SAMMY may not be needed for a while?

THE BOTTOM LINE

Most clients are adequately invested in equities for a stock market crawling higher, and touching new all-time highs along the way, even after taking some profits recently. However, if the stock market serves up a low risk entry to put new, or excess, cash to work, then we will act on the signal, as long as the strategic big picture continues to favor demand over supply. We shall lean toward being invested until the arrival of the next “Big Chill Warning” at which time Alexander and I will be compelled to act to protect accumulated profits, and/or client wealth, should the weight of the evidence begin to shift in favor of supply over demand. Until evidence that supply is overtaking demand arrives, then we will stay invested in equities, and collect dividends for clients along the way.

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Nov 11

TIS THE SEASON

In the agricultural markets there are often strong seasonal tendencies related to the planting, growing and harvesting of crops in the Northern Hemisphere. Obviously this annual cycle impacts the available supply of ag products like corn, soybeans, and so on, which in turn affects price expectations come the harvest. Some commodity traders design strategies to take advantage of these seasonal trends, and books have been written about how a would be ag investor may be able to bend the seasonal cycle to his, or her, advantage.

Seasonal trends in the financial markets are much less obvious, because there is no easily identifiable planting, growing and harvesting cycle at work. However, there is one seasonal worth mentioning, which is often at work in the equity market. Numerous studies have shown that over the last one hundred years, or so, almost all the gains in the stock market have occurred roughly from Halloween to Easter each year. And, the period from Easter to October has made almost no positive contribution to the overall performance of the S&P-500.

The positive seasonal tail wind for stocks from Halloween to Easter is obviously a blunt financial tool, and a significant challenge to apply successfully, but not without a valid basis. Income taxes for the current year ending December 31st are due to be paid in full by April 15th of next year. This annual not so pleasant deadline gives rise to a flood of new money contributions coming into retirement accounts, as the deadline for the current tax year’s retirement contributions loom. Most financial institutions immediately put this flood of new money into the stock market, which in turn creates an artificial seasonal demand for stocks. This process is also boosted by other factors like spending for back to school, or college. Regardless of the contributing factors, this financial seasonal has been proven to exist, but alas the seasonal tendency is not a surgical tool in an investor’s tool box, but more like a tail wind is to a jet airliner, which may be at work sometimes at varying levels of strength.

The bottom line on the positive seasonal influence on the stock market from roughly Halloween to Easter is investors may want to be a bit more aggressive with their asset allocation to equities during this period, if their analytical tools are confirming that demand is strong relative to supply, and/or the strength in demand is growing relative to supply.

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow with the S&P-500 in weekly format overlaid in red and blue candle chart format.

TATY painted out a bottom marginally below the red zone in August, and another bottom in the red zone in September. When this indicator is making bottoms in, or near, the red zone demand is in the superior position to supply. There is no documented case of a major stock market top having formed when TATY is painting out bottoms in, or near, the red zone. Every major top, and the expiration of every major rebound rally during bear markets, over the last almost four decades have occurred after TATY declined into the caution zone surrounding the yellow 115-125 level followed by the indicator stalling out in, or near, the red zone surrounding the 140 level, and then beginning a persistent decline. Price bottoms tend to form in the stock market after TATY bottoms, and then begins to paint out an accelerating positive divergence higher, even as the price continues to probe for its final low.

Diagnosing the formation of a major stock market top is an extremely difficult exercise, and virtually impossible to accomplish successfully without sophisticated, and time tested, analytical tools like TATY. No indicator is perfect in this business, and they all have their individual quirks, but TATY does have an enviable record, and is the best analytical tool I’ve discovered for identifying the formation of major tops after my ongoing multi-decade search.

SAMMY   —   A REPRESENATIVE OF A TACTICAL FAMILY OF SUPPLY AND DEMAND INDICATORS

SAMMY excels at identifying resurgent demand after sellers have exhausted their propensity to sell. It is shown above in the second chart with the SPXL 3X leveraged S&P-500 ETF overlaid. SPXL is for reference only.

SAMMY is of little value during rallies, and the formation of tops, so it is shown above for information only. SAMMY will become extremely valuable again, when the stock market serves up the next tradable bottom. As a tactical indicator, if the big picture strategic indicators are flashing a favorable investment environment, then an investor armed with SAMMY would likely take every signal of exhausted sellers giving way to resurging demand, as an opportunity to put money to work in equities   —   regardless of the price level, or market valuation.

In Capitalism supply and demand determines the price, not the evening news, nor market valuations, rich though they may be currently. For example, the NASDAQ was soaring in the late 1990s, even as valuations became exponentially expensive, but supply and demand continued to drive the price higher powered by expectations the emerging internet would have a huge impact on commerce, and eventually it did. Some internet concept companies came public in those days without any SALES, not to mention no profits! Markets rise and fall on future expectations driving the balance of supply and demand, and not by what is already known and priced into the stock market.

THE BOTTOM LINE

The equity market is not cheap, and the news is really awful for a period of relative peacetime, and all this bad news is coming at investors as if we were drinking from a fire hose. However, while volatility may very well increase due to the uncertainty implied by the looming election, the classic signs of a major top having formed in the stock market are simply not yet in evidence vis -a-vis our proprietary supply and demand indicators. Given the stock market is entering a positive seasonal period, and the lack of objective evidence of a major top forming, investors may reasonably expect the current stock market rally to attempt renewed assaults on new all-time highs, until evidence arrives that supply is moving toward the superior position relative to demand.

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Palm Beach
Nov 4

BULL POWER VERSUS THE NEWS

On numerous occasions over the past several weeks, we have advised investors to ignore the constant stream of bad news to which they have been subjected by the media, both electronic and print. By definition the news is bad, when some members of an administration have already gone to jail, and the president is close to being impeached in the House of Representatives. Yes the bad news is evident domestically daily just by turning on the TV, or glancing at the headlines in the newspapers. And, if one has an international view, then the news is just as bad overseas with the Brexit struggle, an aggressive effort on the part of Mr. Putin to re-establish the former Soviet empire, and constant turmoil in the Middle East.  So, one should sell everything and go on defense in investment portfolios right? Well not so fast, because the bull trend is once again proving the old cliché that bull stock markets climb a “wall of worry”, and this past week the stock market once again in the face of bad news touched new all-time highs. The daily news does not determine the level of prices in the stock market, because the price obeys the law of supply and demand, which means the price level of any market is determined by the ever changing balance of the supply and demand. The law of supply and demand is the only absolute in economics, and everything else is just someone’s opinion.

For clients with legacy stocks, which have portfolios being transitioned to one of our ETF Models, sell targets have been set for your non-dividend paying stocks, which are lagging the performance of the S&P-500. The sell orders have been placed GTC (Good Til Cancelled) and may take several days to execute should the current rally continue to crawl higher. Legacy dividend paying stocks lagging the S&P-500 will have sell targets set once they go ex-div between now and year-end. The sales proceeds, if our sell targets above the market are touched, will be re-invested on the next decline strong enough to drive our premium/discount indicators into deep discount mode, which is then followed by a SAMMY tactical buy signal.

While the news is bad, and may become worse, as long as our objective supply and demand indicators suggests demand remains in the superior position to supply, then we will continue to be buyers of our preferred ETFs, VOO and QQQ, for as long as the market provides us with opportunities to do so on our own terms. This strategy, along with the accompanying tactics, will continue until the arrival of a “Big Chill” warning, at which time we will be compelled to consider re-positioning client portfolios for defense. That event may occur as a part of increasing volatility before the election, or months later after the election. The “when” is not as important as recognizing the “Big Chill” signal may be in the process of completion, whether that be late or soon.

TATY   —   A REPRESENATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow with the S&P-500 overlaid in red and blue candle chart format.

TATY finished the week at a strong 157 level, which suggests the current rally may linger for a while. The economic recovery from the 2007-2009 Great Recession continues to set records for longevity, and for the time being our supply and demand based indicators suggest the stock market rally is likely to confirm by touching new all-time highs. We are NOT in the predicting business, we are in the risk management business, so all we know for sure is our objective measures of supply and demand reflect that demand remains dominant relative to supply. Until that balance changes in favor of supply, investors should expect further attempts for the price to touch new all-time highs.

SAMMY   —   A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above and below with the SPXL S&P-500 3X ETF overlaid. The SPXL ETF is for reference only.

The recent buy signals generated by the SAMMY tactical indicator have continued this indicator’s record of extraordinary accuracy in spotting resurging investor demand, even as the price was hovering near all-time highs. We passed on the last SAMMY signal due to lack of confirmation of a deep enough discount to value situation, but nonetheless SAMMY once again detected the resurgence in investor demand, which recently powered the movement in the price to new all-time highs.

The record of this indicator continues give us the confidence to pull the trigger on purchases, often when institutions are rushing to sell. Institutions can be our best friends in supporting our performance, as their committee decision structure often causes them to sell late into bottoms, and buy late into tops. SAMMY does not have a useful record at tops, so for now there is not much beneficial information being generated by it. However, following the next significant sell-off, SAMMY will likely become critically important again, especially if the premium/discount indicator has reached a deep discount to value zone.

THE BOTTOM LINE

We are taking some well earned profits into the current rally into new all-time highs. Given the fatigued nature of the rally before the push up to new highs, it would be reasonable to expect a significant, and possibly playable decline, after this leg of the rally exhaust itself. We would expect to re-invest sales proceeds into the next decline as long as that decline does not display any signs of morphing into a “Big Chill” situation. At this point there is little objective evidence that a major top is under construction, so we shall be inclined to view declines as buying opportunities.

 

DISCLAIMER: Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.

Jupiter Lighthouse Safety
Oct 4

Politics, Markets & Where to From Here

An election year is only months away. One that we will likely enter with a President well into a full blown Impeachment inquiry, and an overly expansive Democratic candidate list. All of which only increases the risks to an expansion phase well into the late innings.

We never take political sides over here, rather we bring to light the risks of any outcome and prepare accordingly. To that end lets be clear about one thing, love him or hate him, impeachment proceedings are never good for the economy or populace. The faster we get to an outcome, whatever it may be, the better it will be for all those involved. Unfortunately these things take focus away from all the work that must be done to maintain and build both our economy and country. That leads us to the Election, it also causes focus to be moved from operating the country. Before we even move on to how late we are in the expansion phase, we have two major headwinds to future growth.

Will this be the straw that breaks the camels back? Time will tell, but with these factors mixing with changing interest rates and an economy/market near all time highs, the camel’s pace is not what it once was.

The end of the year looks to stay on a modest growth track and we will close this year with solid numbers yet again. It has always been our belief, that when every piece of information says we are nearing the end of growth, its time to begin the transition to protection of the returns we have created. Many of you will begin to see more funds being placed into treasuries, inflation-protected securities and treasury/inflation-protected based ETF’s based upon account size and planning. We do not believe in getting involved in the rush to safety at the last minute, rather we softly begin the move to safety when markets are still riding high.

We have said many times in past articles, not to fear the end of growth, but to prepare for it. I am personally known for stating a very specific quote far too often, “Money doesn’t disappear when markets drop, it just goes somewhere else.” We do everything in our power to already be somewhere else before that transition happens. Current markets suggest that the money will not move outside the U.S. (at least not now or in the near future), rather it will be a “Flight to Safety.”

History has shown that the rush to safety is always short lived. Sooner rather than later, the next big market makes itself apparent. It has been my belief that the next big market will be the return of the next 30 year Fixed Income market.

After the rush into Treasuries, interest rates will begin to both normalize and increase, regardless of what the Federal Reserve does now. One major misconception about interest rates has always been that the Fed controls them. They can manipulate them and adjust the market to soften the blow, but the market itself will always set where things are headed and should be. In fact we have seen just this happen already with the Mortgage Market. Despite the lowering of interest rates by the Fed, we saw mortgage rates increase. This IS a market telling the Fed and all of us that rates are not where they should be and will rise in the future.

 

Alexander Cooke