Master The Game

Keith Schneider | April 11, 2021

This week, another sporting event, The Masters, invokes the steep tradition many avid fans anxiously await. Many golfer friends are glued to the TV Saturday and Sunday on Master's weekend. I am not a golfer, but the true talent that we see each year is a testament to practice, training, coaching, and hard work. Like trading, golf is an individual sport, and the victor in each must wrestle with their emotional state of being. It

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Master The Game

Keith Schneider |

This week, another sporting event, The Masters, invokes the steep tradition many avid fans anxiously await. Many golfer friends are glued to the TV Saturday and Sunday on Master's weekend.

I am not a golfer, but the true talent that we see each year is a testament to practice, training, coaching, and hard work.

Like trading, golf is an individual sport, and the victor in each must wrestle with their emotional state of being. It takes similar mental characteristics to compete on the golf course as it does trading. One mistake can be costly.

The markets are complicated, tricky, uneven, hard to master, and can be punishing when the wrong trades taken. Losses can add up quickly if position sizing is incorrect, losing trades aren't closed quickly enough, or when stops are not diligently placed and executed.

In golf, you can see it in the low scores, mental anguish, and tough competition at Augusta National in Georgia.

We (MarketGauge) can also see it when we hear about the low winning percentage of trades, emotional frustration, and difficult trading stories from hedge fund buddies, friends, family members, and new subscribers.

There are clear similarities between golfers and traders, and they share many of the same successes and frustrations.

Similarly, during the Masters, I often hear the golfers, when interviewed, say…

"I have to stay within my game, mitigate mistakes and not let my minor mistakes throw me off course."

Folks, the exact same thing is true for traders whether you are new, very experienced, or a professional full-time trader and investor.

You must control your risk, and not get too complacent or too confident, or scared by recent losses so that you start changing your game plan and set yourself up for failure.

Like the hallowed grounds that very few golfers can master, the markets have their own twists and turns and are as difficult to read as the greens at Augusta.

We built MarketGauge so you don't have to guess what the markets are going to do in the near future.

Here are this week's latest highlights:

  • Risk Gauges remain bullish as equities were very strong +2.5% on average, except for small caps which were down on the week
  • High yield debt has lost leadership over the US Long Bond and could be flashing warning/risk-off if further weakness prevails
  • XLU (Utilities), a risk-off indicator, weakened against equities which is bullish for stocks
  • Semiconductors and the Retail sector are leading the Modern Family's new leg up. Speculative Biotechnology (IBB) trending downward.
  • Volume patterns showing accumulation in the DIA while the once leading small caps have had zero accumulation days over the past two weeks. This is a byproduct of the rotation back into big tech
  • Sentiment and Market Internals are both in bullish modes
  • US equities were led by the Tech (XLK +4.6%) and Consumer Discretionary (XLY +3.9%) sectors, which confirms our Risk-On readings
  • Sentiment and Market Internal are both in bullish modes
  • Gold and Gold miners bounced off recent lows and could be poised for more upside as a double bottom looks to be in place
  • Long Bonds (TLT) is holding recent lows and needs to hold its 200-week moving average to keep a longer-term bullish outlook
  • Emerging Markets (EEM) could be renamed to submerging as US equities are once again leading global equities higher
  • Seeing very low volatility, good for stocks, but this complacency can also produce a volatility spike. Keeping us "onguard" for that potential.
  • The number of S&P stocks above their 200 DMA has hit high numbers in the mid 90's yet again. Not so with NASDAQ and Small-caps. Look for more room for these stocks on the upside.
  • Value stocks are still taking a breather; growth stocks are taking leadership yet again.

Have a great weekend and best wishes for your trading.

Keith Schneider
CEO
MarketGauge.com


The Successful Search for the Golden Egg

Keith Schneider | April 4, 2021

blankI hope you’ve had a great week.

From the entire MarketGauge family to you and your family, we wish you a happy Easter (if you celebrate it), and to our Jewish friends, a belated Happy Passover holiday.

We are grateful that we get to share freedom, holidays and investment days with you, our extended family of subscribers.

Did you know…

History has it that in the 16th century Protestant Reformer, Martin Luther took his congregation outside and the woman and children hunted for eggs when a woman stumbled upon the empty tomb and thus sprung the concept of the Resurrection.

As a result, many families today have an Easter Egg hunt for their children and believe this tradition is integral to the Easter holiday.

To me, Easter has always held an important milestone each year as it ushers in spring, flowers, trees regrowing their leaves, and the symbol of renewal.

Easter and spring are a hopeful time for many of us in the US that are beginning to thaw out from the long winter.

I believe most people would agree…

2021 has been one of the longest winter’s they lived through given the double whammy of cold air and remaining lockdowns from COVID.

This year we have additional renewal as people are getting the vaccine, virus numbers are declining, and many areas are “opening up.”

Businesses that weathered closing or reduced opportunities to operate their business due to the “lockdowns” are remerging with hopeful signs of resuming business as usual.

And now, we’re all rolling into the unexpectedly bullish month of April.

April is historically a great month for the stock market.

And for those investors who are aware of its history, it can be a “golden egg.”

Were you aware that of all months, April has been one of the three best months for the S&P 500 going back to 1928? (January and July are the other two).

April has an average return of 0.88% a median return of 1.12% and is positive 63.4% of the time. (July is the best with a positive 67.2% of the time).

However, wait…

It gets better.

Over the past more recent two decades (2000-2020), April has been the best month of the year with an average return of 2.5% and a positive return 80% of the time.

And in 2021 the bullish bias is in full force…

One of our Alpha Rotation models that trades the bullish and bearish trends on the major indexes issued a new buy alert on one of the major three (SPY, QQQ, and IWM) for Monday and the other two are already in long positions.

Additionally, as you’ll read in this week’s highlights below…

Our Risk Gauges are either 100% bullish or they have moved in the positive direction across the board.

So statistically speaking…

The market is going into the bullish month of April feeling optimistic and hopeful.

Are you ready for it?

If you’re familiar with MarketGauge, or you’re just starting to follow us, then you know or you’re about to discover…

It’s time to define your risk, and manage your upside!

If you’d like help doing this with automated trading systems or indicators that enable you to do it yourself, let us know.

Managing Risk

As we suggested in last week’s commentary, “Play Ball,” it is important to have an investment edge.  Whether through diversification, position sizing, or how you deploy your assets between models, we want you to have the home-field advantage.

MarketGauge is always performing its own Golden Egg hunt as we seek to uncover the stocks and ETF’s that have the highest likelihood to outperform.

Our confidence comes from our Risk Managed Process (RMP), which starts with a determination if we want to be invested in the first place.

Secondly, once we determine that we want to be invested, our three proprietary ranking and scoring tools, TSI (Trend Strength Indicator), RM (Real Motion) and TP (Triple Play Indicators) give us the analytical prowess to determine which are the best Golden Eggs.

Our job is to identify risk quickly and steer clear even if we must take small losses to do so as we did last month.

Last year, 2020, was a great lesson for us, and every investor as we got out of equities in late January and February before they peaked because our Risk Gauges indicated dangerous levels of bearish sentiment existed in equities.

When we pivoted out of stocks, we bought bonds. As you may recall, bonds melted up during the stock market’s collapse. This put our risk-adjusted returns in a class by itself.

By avoiding the turmoil, we had most, if not all, of our money to work with on the next leg up which began in earnest in April of last year.

In the long run, reducing or avoiding drawdowns like those caused by bear markets like early 2020 is as important as outperforming in bull markets like the second half of 2020.

Outperforming In Bull Markets

One of our tactics for outperforming the market is to have strategies that have a small number of positions.

This approach is very different than the large number of positions that most managers, ETF’s, and mutual funds employ.

Did you ever notice that most of those vehicles do not perform much better than the benchmarks they are comparing themselves to?  This is by design; over-diversification means they cannot miss the target by much.   Additionally, virtually all these vehicles do not employ a Risk Managed Process like ours.  If their respective benchmark goes down then they will most likely go down as much if not more.

Most investment vehicles are overly diversified and do not really provide the investor with the opportunity to beat their benchmarks and add alpha.

Early on in our company’s history, we identified that if we could properly manage Risk (our #1 priority), own a few Golden Eggs (stocks), then we would produce investment returns that provide:

  1. Non-correlated to the market or benchmark;
  2. Significant “ALPHA” or value add as compared to the benchmark; and
  3. Much better RISK-ADJUSTED numbers than others that are giving similar advice and/or managing people’s assets.

We have produced significant home runs over the past year using this process and relying on our proprietary Risk Managed Process to gain the investment edge.

For example, this past week we got out of Tesla after owning it for almost a year with a cost basis of around $100.  We got out much of our holdings in stages and some at a higher price than this week’s sale. This week’s sale of our final 12.5% of our original position locked in a gain of than 600% return.

While a 600% gain is enviable and appears to an investor’s golden egg, our strategies don’t rely on triple-digit gains to dramatically and consistently outperform the market.

The more reliable and achievable golden egg in investing is found by reducing drawdowns with good risk management and delivering consistent double-digit winning trades.

For example, over the last 12 years, this approach has delivered strategies that have had significantly lower drawdowns (less than 30%) than the S&P 500,  while providing dramatically higher returns ranging from about 700% to over 28,000%.

We continue to work hard to discover new optimal twists in our investment strategies and to develop new and different ways to manage risk.  Our goal is to provide you with the best GOLDEN EGGS we can uncover.  We will continue working hard to gain more of your confidence and trust.

Here are this week’s latest highlights:

  • Two of our three Risk Gauges remain bullish with the third moving from bearish to neutral. And all US equity benchmarks are back in a bullish phase.
  • Volume patterns across all four US equity benchmarks improved somewhat but remain in neutral territory.
  • US equities were led by Semi’s (+9.93%) challenging the notion that big tech is dead.
  • Soft Commodities (DBA) maintained its bullish market phase
  • Gold and Gold miners bounced off recent lows and could be poised for more upside.
  • Long Bonds (TLT) also held recent lows and held a critical long-term monthly moving average, and could be poised for more.
  • The Modern Family was led by Semi’s with all family members doing well.
  • Big Cap value (DIA) paused on its leadership +1.61% while the more broad-based S&P 500 was up +2.8% and made new all-time new highs.
  • Market Internals moved back to bullish across most of our indicators.
  • Sentiment indicators also regained their footings and are back to bullish.
  • Energy (USO) which got hit hard last week bounced nicely off its 50 DMA.

Have a great weekend and best wishes for your trading.


The Successful Search for the Golden Egg

Keith Schneider |

I hope you’ve had a great week. From the entire MarketGauge family to you and your family, we wish you a happy Easter (if you celebrate it), and to our Jewish friends, a belated Happy Passover holiday. We are grateful that we get to share freedom, holidays and investment days with you, our extended family of subscribers. Did you know… History has it that in the 16th century Protestant Reformer, Martin Luther took his congregation

This content is for Premium subscribers only. Please register or click here to login.


Play BALL!

Keith Schneider | March 29, 2021

blankActive investors and traders can learn a lesson or two from watching baseball, and...

This week on April 1, all 30 Major League Baseball (MLB) teams will begin their 2021 season and hopefully survive a full schedule of 162 games plus playoffs ending close to November 2021.

In both baseball and trading…

One way to win more often is to have an edge (a real statistical advantage) and play your game with strategies and tactics that exploit it.

Sometimes the edge has a short-term duration.
When it’s in play, you need to take action to capitalize on it.

Sometimes, playing with an edge requires a longer-term strategy of showing up and playing your game consistently with tactics that benefits from the edge.

The best of times come when short-term and long-term edges converge and compound in effectiveness.

The first steps in playing (trading) with an edge are knowing that it exists and then recognizing that it’s in play.

This Spring we’re hopeful that the professional baseball season will usher in the start of warmer weather, barbecues, swimming, boating, getting together with friends and family, and some sense of normalcy.

You may recall that the MLB only played 62 regular season games last year with no fans in attendance.

What you may not know is that…

An interesting edge for baseball players disappeared in the 2020 season, and even those who don’t know about this anomaly will be very happy to see it return in 2021.

I hope it returns because, like a “market truth”, it impacts how the game is played and enjoyed by even casual fans like me.

Even as a casual fan, baseball brings back great and vivid memories of growing up in NY.

I recall the “treat” of getting to go to a game and experiencing the sounds of baseball...the crack of the ball hitting the bat; the vendors calling out “beer here” and the smell of fresh cooked hot dogs with stadium mustard and of course the occasional bag of peanuts where I could throw my shells below me near my shoes.

I vividly recall the diehard fans tracking the progress of the game and the performance of the players with their scorecards.

They recorded everything - the number of hits, the batter’s records, the pitcher’s balls and strikes, and more.

These diehard fans recorded every player that touched the ball on every play.

Of course, every other fan watched the most popular statistic, the score, in the same way that the average investor focuses on the ups and downs of the Dow Jones Industrial Average.

But as a reader of this post, you probably know that the Dow is just the “tip of the iceberg” and the keys to building wealth in the market are found elsewhere…

The excitement of the game of baseball, and the manual recording of all the game’s action was very analogous in many ways to my days of being an independent floor trader following the markets with hand-drawn point and figure charts.

To this day, amid all the noise and excitement created by the fans and players, there is another game being enjoyed by people collecting data and anticipating outcomes.

Now, with digital scoreboards and big data computing power, we’re all a few clicks on our phone away from every baseball statistic known to man. This data describes the efficiencies of each player, the defense, at-bats, and more.

As a result, team managers can identify the most valuable players in baseball for any position and every game-time situation.

This is particularly powerful considering that if 2 or 3 players get “hot” with unstoppable batting or unhittable pitching, they can give the team enough of an edge to consistently win games.

The edge of having the right player at the right time is often compounded by the tendency players and teams to experience “streaks”, much like traders, investors and markets do.

In baseball, a good streak means better stats or more wins. In trading, it means a bigger account balance. Either way, it’s a “market truth.”

The proof of this “market truth” plays out every year as baseball moves into its post season and the hottest players are traded as frantically as the stock market’s swing traders are currently buying and selling shares in SPACS on the hopes of what they might become in the very short-term future.

Additionally, baseball managers play a never-ending game of tactically putting players in the game precisely when they believe they have an edge that will outperform the competition under certain circumstances.

PLAY BALL WITH US

Understanding baseball can make us all better investors.

Baseball games and markets are both full of streaks, surprises, and reversals of fortune. As a result, they can both become an emotional rollercoaster.

As I’ve suggested, they both also have short-term and long-term edges.

These ‘edges’ are conditions or sequences of events that are recognizable and give anyone choosing to identify them an advantage over those who ignore them.

As I began above, in 2020 baseball players lost an edge that has existed for over century.

This is what I was referring to…

Have you ever experienced a home team transition from a group of players quietly losing a game into a team of rock-star performers who can do no wrong as the sound of the stadium builds from a dull hum into a deafening roar?

Sometimes it starts with an exciting play like homerun.

Sometimes it starts with a simple base hit that puts a “tying run” on base, and that sparks a new feeling of hope for what could come next.

And sometimes…

It starts with the home-town fans deciding that it’s time to get loud to motivate their team.

Regardless of how it begins, once underway…

The events and the energy of the crowd that follows have a predictable pattern.

Players perform at their best.

The stadium roars.

And then… the home team often wins.

This is baseball’s home field advantage at work.

Sure, this sequence of events can happen for the away team, but…

Statistically, however, the away team doesn’t enjoy this edge.

I don’t bet on sports games, but if I did…

I’d place my bets on the home team when this comeback momentum is underway.

I do bet on market, and when I do…

I like to have a “home team” edge.

As you can see by the chart below, the home team has a statistical edge. Looking back over 100 years, the home team has won roughly 54% of the time.

Interestingly, and to further prove the point, in 2020 when fans were not able to attend games, the edge all but disappeared.

blank

Of course, the markets don’t have a home and away team, but they do have ‘bulls’ and ‘bears’ and plenty of analogous conditions, sequences of events, and human emotions that lead to the same predictable result.

Since the obvious fuel for both the bulls and the bears is derived from the current and expected future political and economic conditions, let’s start there.

On the bullish side…

  • The economy is opening back up.
  • People are feeling more positive about going out in public and with the vaccines, they are less worried about contracting COVID.
  • The Government is throwing tons of money at the problem. (positive now but may have negative consequences later)

On the bearish side…

  • With the economy opening up and loose monetary policies around the world, inflation is heating up.
  • The cost of building supplies, food and energy are going up quickly.
  • Interest rates are from the “re-opening” of the economy.
  • Consumer sentiment readings are high from expectations that things would improve, but they are stalling.
  • China is curtailing what products can enter into their country, and a deeper trade war heating up as they test the new administration.

Important factors that could support fuel bullish or bearish sentiment…

  • Shift in government sentiment to higher taxes and more regulation.
  • More scrutiny about company’s earnings and the transparency of their position on race, social issues and compliance to government oversight.
  • The Dollar is gaining strength worldwide which will affect trade.

With all that in mind…

Who’s got the home field advantage? Bulls or bears?

For better or worse, answering that question by betting on the direction of the whole market is just one of many ways to make money in the market.

Additionally, as a trader or active investor, you need to be clear about whether you’re placing your bets on an edge that is relevant to the baseball equivalent of whether or not the next batter will get on base, or your team will win the current inning, game, series of games, or even the whole season.

At MarketGauge, we’re careful to match our strategies, automated trading models, and tactics to the time frames in which they have an edge, and therefore, also outperform.

For example, if I were to describe the MarketGauge mechanical models using baseball analogies….

  • Our Alpha Rotation models only enters trades when the bulls have a clear home field advantage, or when the bears have their very different home field advantage.Alpha Rotation seeks to win the season without focusing on every game.
  • On the other hand, the sector models take trades that could be viewed as betting on the teams that have a current and historical precedent for winning in the current market environment.There are sectors that will have winning streaks even in bearish markets, so you’ll have a winning season by focusing on the teams that are going to win consecutive games but may not be the best team of the season.
  • The All-Stars models bets on the best players (stocks) which have demonstrated an edge that has generated market beating performance based on data going back to the 1920’s.In much the same way that 2 or 3 hot players can carry a team to consistent wins, our All-Stars models have proven that a well-managed group of 5 market-leading stocks can dramatically outperform the market’s returns and have substantially smaller drawdowns (losing streaks), while completely eliminating the need to consider a buy and hope approach to investing.

As an active investor, it’s important to be aware of what strategy you’re using and why. This ensures that you stay disciplined, which is important for being profitable over the long-term.

Each strategy will, at times, enjoy its own home field advantage, but you also need to recognize that there will be more difficult times too. This is why position sizing and diversification is important.

Finally, you don’t need to choose to play with only one strategy. Diversifying into more than one strategy can reduce your portfolio's volatility.

As the market pulls back, it’s a good time to review the strategies you’re employing and why to help maintain good discipline, diversification and position sizing.

If you have any questions, don’t hesitate to reach out to us for help.

Here are this week’s latest highlights:

  • Risk Gauges fluctuated this week from risk off mid-week to risk on by the Fridays close.
  • Volume patterns across all four US equity benchmarks are still in neutral territory.
  • US equities were led by Big Cap (DIA) and Value Stocks (VTV) which has resumed its bullish outperformance of foreign equites including both Emerging (EEM) and more established markets (EFA).
  • Soft Commodities (DBA) gave up leadership verses the S&P 500 but kept its bullish market phase.
  • Grandpa Russell (IWM) dropped -2.79% for the week and closed in a warning phase. The NASDAQ 100 did the same.
  • IYT (Transportation) was the standout of the Modern Family closing on new highs with great volume as the focus on Capitol Hill is infrastructure spending.
  • Volume patterns across all four US equity benchmarks are still in neutral territory.
  • Long Bonds (TLT) managed to bounce +1.42% for the week getting that mean reversion bid from the sharp selloff we highlighted last week.
  • The Modern Family continues it leadership rotation to the Financial Sector (KRE) while Semi’s (SMH) and Biotech (IBB) stayed weak.
  • Big Cap Value (DIA) continues to outpace its piers.
  • Market Internals including the McClellan Oscillator pattern moved back to neutral zone. However, the number of new highs is looking weak which is bearish.
  • Sentiment indicators are looking more bullish as IWM is working off oversold levels (# of stocks under its 10-DMA)
  • Volatility as measured by the VIX, is easing back down and trading under 20, violating this important level and can only be interpreted as bullish.
  • Energy (USO) got hit hard on Thursday and bounced on Friday holding its 50 DMA and has an inside day pattern.
  • Gold (GLD) was down marginally and is compressing which means the move out of this zone could be substantial.
  • Soft Commodities (DBA) need to hold current levels on weekly charts to keep a bullish posture.

Have a great weekend and best wishes for your trading.

Here's your Premium video:


Play BALL!

Keith Schneider |

blankActive investors and traders can learn a lesson or two from watching baseball, and...

This week on April 1, all 30 Major League Baseball (MLB) teams will begin their 2021 season and hopefully survive a full schedule of 162 games plus playoffs ending close to November 2021.

In both baseball and trading…

One way to win more often is to have an edge (a real statistical advantage) and play your game with strategies and tactics that exploit it.

Sometimes the edge has a short-term duration.
When it’s in play, you need to take action to capitalize on it.

Sometimes, playing with an edge requires a longer-term strategy of showing up and playing your game consistently with tactics that benefits from the edge.

The best of times come when short-term and long-term edges converge and compound in effectiveness.

The first steps in playing (trading) with an edge are knowing that it exists and then recognizing that it’s in play.

This Spring we’re hopeful that the professional baseball season will usher in the start of warmer weather, barbecues, swimming, boating, getting together with friends and family, and some sense of normalcy.

You may recall that the MLB only played 62 regular season games last year with no fans in attendance.

What you may not know is that…

An interesting edge for baseball players disappeared in the 2020 season, and even those who don’t know about this anomaly will be very happy to see it return in 2021.

I hope it returns because, like a “market truth”, it impacts how the game is played and enjoyed by even casual fans like me.

Even as a casual fan, baseball brings back great and vivid memories of growing up in NY.

I recall the “treat” of getting to go to a game and experiencing the sounds of baseball...the crack of the ball hitting the bat; the vendors calling out “beer here” and the smell of fresh cooked hot dogs with stadium mustard and of course the occasional bag of peanuts where I could throw my shells below me near my shoes.

I vividly recall the diehard fans tracking the progress of the game and the performance of the players with their scorecards.

They recorded everything - the number of hits, the batter’s records, the pitcher’s balls and strikes, and more.

These diehard fans recorded every player that touched the ball on every play.

Of course, every other fan watched the most popular statistic, the score, in the same way that the average investor focuses on the ups and downs of the Dow Jones Industrial Average.

But as a reader of this post, you probably know that the Dow is just the “tip of the iceberg” and the keys to building wealth in the market are found elsewhere…

The excitement of the game of baseball, and the manual recording of all the game’s action was very analogous in many ways to my days of being an independent floor trader following the markets with hand-drawn point and figure charts.

To this day, amid all the noise and excitement created by the fans and players, there is another game being enjoyed by people collecting data and anticipating outcomes.

Now, with digital scoreboards and big data computing power, we’re all a few clicks on our phone away from every baseball statistic known to man. This data describes the efficiencies of each player, the defense, at-bats, and more.

As a result, team managers can identify the most valuable players in baseball for any position and every game-time situation.

This is particularly powerful considering that if 2 or 3 players get “hot” with unstoppable batting or unhittable pitching, they can give the team enough of an edge to consistently win games.

The edge of having the right player at the right time is often compounded by the tendency players and teams to experience “streaks”, much like traders, investors and markets do.

In baseball, a good streak means better stats or more wins. In trading, it means a bigger account balance. Either way, it’s a “market truth.”

The proof of this “market truth” plays out every year as baseball moves into its post season and the hottest players are traded as frantically as the stock market’s swing traders are currently buying and selling shares in SPACS on the hopes of what they might become in the very short-term future.

Additionally, baseball managers play a never-ending game of tactically putting players in the game precisely when they believe they have an edge that will outperform the competition under certain circumstances.

PLAY BALL WITH US

Understanding baseball can make us all better investors.

Baseball games and markets are both full of streaks, surprises, and reversals of fortune. As a result, they can both become an emotional rollercoaster.

As I’ve suggested, they both also have short-term and long-term edges.

These ‘edges’ are conditions or sequences of events that are recognizable and give anyone choosing to identify them an advantage over those who ignore them.

As I began above, in 2020 baseball players lost an edge that has existed for over century.

This is what I was referring to…

Have you ever experienced a home team transition from a group of players quietly losing a game into a team of rock-star performers who can do no wrong as the sound of the stadium builds from a dull hum into a deafening roar?

Sometimes it starts with an exciting play like homerun.

Sometimes it starts with a simple base hit that puts a “tying run” on base, and that sparks a new feeling of hope for what could come next.

And sometimes…

It starts with the home-town fans deciding that it’s time to get loud to motivate their team.

Regardless of how it begins, once underway…

The events and the energy of the crowd that follows have a predictable pattern.

Players perform at their best.

The stadium roars.

And then… the home team often wins.

This is baseball’s home field advantage at work.

Sure, this sequence of events can happen for the away team, but…

Statistically, however, the away team doesn’t enjoy this edge.

I don’t bet on sports games, but if I did…

I’d place my bets on the home team when this comeback momentum is underway.

I do bet on market, and when I do…

I like to have a “home team” edge.

As you can see by the chart below, the home team has a statistical edge. Looking back over 100 years, the home team has won roughly 54% of the time.

Interestingly, and to further prove the point, in 2020 when fans were not able to attend games, the edge all but disappeared.

blank

Of course, the markets don’t have a home and away team, but they do have ‘bulls’ and ‘bears’ and plenty of analogous conditions, sequences of events, and human emotions that lead to the same predictable result.

Since the obvious fuel for both the bulls and the bears is derived from the current and expected future political and economic conditions, let’s start there.

On the bullish side…

  • The economy is opening back up.
  • People are feeling more positive about going out in public and with the vaccines, they are less worried about contracting COVID.
  • The Government is throwing tons of money at the problem. (positive now but may have negative consequences later)

On the bearish side…

  • With the economy opening up and loose monetary policies around the world, inflation is heating up.
  • The cost of building supplies, food and energy are going up quickly.
  • Interest rates are from the “re-opening” of the economy.
  • Consumer sentiment readings are high from expectations that things would improve, but they are stalling.
  • China is curtailing what products can enter into their country, and a deeper trade war heating up as they test the new administration.

Important factors that could support fuel bullish or bearish sentiment…

  • Shift in government sentiment to higher taxes and more regulation.
  • More scrutiny about company’s earnings and the transparency of their position on race, social issues and compliance to government oversight.
  • The Dollar is gaining strength worldwide which will affect trade.

With all that in mind…

Who’s got the home field advantage? Bulls or bears?

For better or worse, answering that question by betting on the direction of the whole market is just one of many ways to make money in the market.

Additionally, as a trader or active investor, you need to be clear about whether you’re placing your bets on an edge that is relevant to the baseball equivalent of whether or not the next batter will get on base, or your team will win the current inning, game, series of games, or even the whole season.

At MarketGauge, we’re careful to match our strategies, automated trading models, and tactics to the time frames in which they have an edge, and therefore, also outperform.

For example, if I were to describe the MarketGauge mechanical models using baseball analogies….

  • Our Alpha Rotation models only enters trades when the bulls have a clear home field advantage, or when the bears have their very different home field advantage.Alpha Rotation seeks to win the season without focusing on every game.
  • On the other hand, the sector models take trades that could be viewed as betting on the teams that have a current and historical precedent for winning in the current market environment.There are sectors that will have winning streaks even in bearish markets, so you’ll have a winning season by focusing on the teams that are going to win consecutive games but may not be the best team of the season.
  • The All-Stars models bets on the best players (stocks) which have demonstrated an edge that has generated market beating performance based on data going back to the 1920’s.In much the same way that 2 or 3 hot players can carry a team to consistent wins, our All-Stars models have proven that a well-managed group of 5 market-leading stocks can dramatically outperform the market’s returns and have substantially smaller drawdowns (losing streaks), while completely eliminating the need to consider a buy and hope approach to investing.

As an active investor, it’s important to be aware of what strategy you’re using and why. This ensures that you stay disciplined, which is important for being profitable over the long-term.

Each strategy will, at times, enjoy its own home field advantage, but you also need to recognize that there will be more difficult times too. This is why position sizing and diversification is important.

Finally, you don’t need to choose to play with only one strategy. Diversifying into more than one strategy can reduce your portfolio's volatility.

As the market pulls back, it’s a good time to review the strategies you’re employing and why to help maintain good discipline, diversification and position sizing.

If you have any questions, don’t hesitate to reach out to us for help.

Here are this week’s latest highlights:

  • Risk Gauges fluctuated this week from risk off mid-week to risk on by the Fridays close.
  • Volume patterns across all four US equity benchmarks are still in neutral territory.
  • US equities were led by Big Cap (DIA) and Value Stocks (VTV) which has resumed its bullish outperformance of foreign equites including both Emerging (EEM) and more established markets (EFA).
  • Soft Commodities (DBA) gave up leadership verses the S&P 500 but kept its bullish market phase.
  • Grandpa Russell (IWM) dropped -2.79% for the week and closed in a warning phase. The NASDAQ 100 did the same.
  • IYT (Transportation) was the standout of the Modern Family closing on new highs with great volume as the focus on Capitol Hill is infrastructure spending.
  • Volume patterns across all four US equity benchmarks are still in neutral territory.
  • Long Bonds (TLT) managed to bounce +1.42% for the week getting that mean reversion bid from the sharp selloff we highlighted last week.
  • The Modern Family continues it leadership rotation to the Financial Sector (KRE) while Semi’s (SMH) and Biotech (IBB) stayed weak.
  • Big Cap Value (DIA) continues to outpace its piers.
  • Market Internals including the McClellan Oscillator pattern moved back to neutral zone. However, the number of new highs is looking weak which is bearish.
  • Sentiment indicators are looking more bullish as IWM is working off oversold levels (# of stocks under its 10-DMA)
  • Volatility as measured by the VIX, is easing back down and trading under 20, violating this important level and can only be interpreted as bullish.
  • Energy (USO) got hit hard on Thursday and bounced on Friday holding its 50 DMA and has an inside day pattern.
  • Gold (GLD) was down marginally and is compressing which means the move out of this zone could be substantial.
  • Soft Commodities (DBA) need to hold current levels on weekly charts to keep a bullish posture.

Have a great weekend and best wishes for your trading.


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March Madness (and why it matters to you)

Keith Schneider | March 22, 2021

blankAfter a two-year, COVID-19 induced hiatus…

This week I was reminded of the excitement of the return this weekend of March Madness (NCAA men’s basketball tournament).

My colleague’s description of the March Madness betting expectations sounded like the same stories I hear about the market’s upside projections, like Tesla’s continuous volatile climb this past year or the re-opening of society.

I shouldn’t have been surprised.

This is MARCH MADNESS, and this weekend, 64 college men’s basketball teams will get the opportunity and privilege to compete to be called the best in all the land. I’m told there are a lot of “new teams” that have not competed in the NCAA basketball tournament in many years, if not decades.

These new teams are like a small cap stock that has exploded in price and now rests in the NASDAQ 100 (QQQ).

These new teams are from schools as small as 4,000 students that have been pining to make the playoffs for many decades.

They haven’t won a single game in the tournament for some 50 odd years.

I mention the tournament because, like the markets hitting new highs, the appetite for college sports reminds me of the ongoing excitement and enthusiasm surrounding the new IPOs, SPACS, and obscure technology companies which are all generating fresh interest daily.

Making this year’s March Madness even more maddening is the fact that on Friday there were 6 major upsets! Then on Saturday night, there were another two making it a total of 8 huge upsets.

One example, the #15 seeded, 4,000-student Oral Roberts, defeated the 60,000-student, #2 Big Ten Ohio State.

March Madness upsets like these demonstrate the power of the right team, in the right place, at the right time.

March Madness upsets are like the potential of small cap stocks.

Imagine if you had the right technology stocks last year, like Zoom (ZM) and Moderna (MRNA), in your “bracket” or portfolio last year as they rocketed from obscurity to leaders within their categories.

Fortunately, stocks are not as difficult to get right as college basketball teams.

Here are some crazy statistics surrounding March Madness…

Submitting your college team picks in a “bracket” has become a national pastime.

ESPN offers $1,000,000 to the winner with the perfect “bracket.”

Some 48 million brackets had been submitted to become this year’s perfect submission.

ANY and ALL winners walk away with a cool $mil!

Unfortunately, it’s not that easy.

Of the 48 million “brackets” as of Friday night, there were supposedly only 160 perfect brackets remaining at midnight Friday.

As of Saturday afternoon, it was down to 8.

And by Saturday night, NONE.

WOW. This has never happened in round 1. What are the odds of that happening?I want to point out that the March Madness tournament has that name because unforeseen victories happen that are least expected. This is like a stock that gets downgraded and sees a sharp 10% correction overnight.

It also reminds me of the current euphoria that is pervasive by traders and investors alike and the vast sums of money the market is attracting.

Over the past few months, we’ve highlighted in this weekly Market Outlook…
…the current economic backdrop of loose money,
…accommodative Fed Policy, and
…ongoing stimulus or “helicopter” money being dropped from the sky.

This has tricked the economy in both positive and negative ways.

Food prices, gasoline, real estate, and the cost of eating out have all gone up and that may eventually have a negative effect on inflation.

The positives, of course, are that if you are selling real estate, putting money in the market, or have any kind of collectibles (artwork, jewelry, old cars) this environment benefits the collectors, holders, and certainly the sellers.

This “loose” money is also finding its way into the markets.

We have seen many new highs in the Dow, S&P 500, Russell 2000, and continued high sentiment readings on many stocks, and…

Many of the biggest gainers have been the previously beaten down “value” stocks.

However euphoric the markets appear to be and…
However fast the money is being made by speculators in Bitcoin, small-cap stocks, SPACs, retailers, and semiconductor stocks…

I am here to remind you things can get ugly really fast.

Recently, we have been redundant in our warnings on encouraging you to use strict discipline and an investment process that manages RISK as its priority.

Many of you have inquired about a few of our investment strategies that are currently mostly invested in cash.

For example, our NASDAQ and Small Cap All-Stars have high cash positions.

A big up day in the market brings questions from subscribers about when we might get back in?

The next day, when the market is down sharply, I hear from others that say, “boy am I happy to be sitting in cash.”

As floor traders on the exchanges, we learned long ago that it is more important to keep your profits, protect your principal, and sit the dance out when things become uncertain, go sideways, and get volatile.

That time is now. It is particularly important to invest in more than one strategy and exploit more than one “edge.”

We encourage you to incorporate several of the MarketGauge strategies/models in your overall game plan.

Additionally, we will continue to provide additional methodologies and strategies to help you further diversify and exploit more than one “edge.”

March Madness is all fun and games if you’re playing your brackets, but we suggest you don’t take the same approach with your trading, and…

You can be a big WINNER in our rendition of March Madness for trading and investing.

Here are this week’s latest highlights:

  • Risk Gauges backed off to a neutral reading, an important shift to keep in your focus
  • Value (VTV) plays continue to outperform growth since early November 2020
  • US equity benchmarks stalled, led by Grandpa Russell (IWM) – 2.82% for the week, which is running rich but up over 15% YTD
  • Three of the four US equity benchmarks closed under their 10 DMA’s while the QQQ’s remained under 50 DMA and in a caution phase
  • Volume patterns across all four US equity benchmarks improved to neutral
  • Long Bonds (TLT) made new 52-week lows with quickly rising interest rates overhanging the markets, although a bit of mean reversion (a rally) is in the ether
  • The Modern Family continues its leadership rotation to the Financial Sector (KRE} while Semi’s (SMH) and Biotech (IBB) stayed weak
  • Big Cap Value (the DIA) continues to outpace its piers
  • Market Internals / McClellan Oscillator patterns reversed yet again and back into a defensive posture
  • Energy (USO) reversed its massive move to the upside as the vaccine rollout in Europe stalled, hurting prospects for a quick recovery
  • Sentiment held steady with the cash index staying above 20, or cautious levels
  • Gold (GLD) and Gold miners (GDX) firmed versus the S&P 500, while Oil dropped as these two commodities continue to run divergent from each other. This is quite a shift from the 1970’s where petrol dollars found their way into the yellow relic, driving gold to $850 per ounce. It peaked by January of 1980, over 25X from its lows early in 1971 ($35 per ounce)
  • Soft Commodities (DBA) need to hold current levels on weekly charts to keep a bullish posture

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March Madness (and why it matters to you)

Keith Schneider | March 21, 2021

After a two-year, COVID-19 induced hiatus… This week I was reminded of the excitement of the return this weekend of March Madness (NCAA men’s basketball tournament). My colleague’s description of the March Madness betting expectations sounded like the same stories I hear about the market’s upside projections, like Tesla’s continuous volatile climb this past year or the re-opening of society. I shouldn’t have been surprised. This is MARCH MADNESS, and this weekend, 64 college men’s

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The Investment “VACCINE”

Keith Schneider | March 14, 2021

A friend DG, contributed to the beginning of this article

blank

“Keith, hope you and Mish are well.  We are in Florida and just wanted to tell you that part of the country is “wide open”.  Few people wear masks here and the discussion with friends, over and over, is about the “VACCINE”.  Thought I would share some insight on how these conversations go here in South Florida.

Like a badge of honor or buying a sexy stock or valuable trading cards, we have not been too many places where the first topic of discussion is “Did you get your shot yet?”  We have spoken with friends up north and they too ask us right away “Get the shot yet?” or I had to drive three counties over to a small obscure Rite Aid to get my Moderna shot.  Our mutual friend here in Ft. Lauderdale is driving to Pensacola Sunday because that is the only place he can get the “shot”.

Last night, however, during a dinner with friends from NJ, the wife said there is no way on earth I am getting the Vaccine (an anti-vaxxer who has bought into the possible harmful effects and many conspiracy theories out there, right, or wrong she does not want a potentially “harmful” substance in her body).  Most interesting though is that her children will have to get “the SHOT” in order to return to school in New Jersey.”

vac·cine

/vakˈsēn/

noun

  • a substance used to stimulate the production of antibodies and provide immunity against one or several diseases, prepared from the causative agent of a disease, its products, or a synthetic substitute, treated to act as an antigen without inducing the disease:


The SHOT:

Whether or not it eliminates the dangerous COVID virus, most Americans want a magic elixir.  The side effects and potential harm are insignificant that most Americans are willing to jump through hoops to get one of the 3 approved vaccines.  It is the talk of the town.

I want to discuss with you how it is affecting the significant rotation in stocks, our technical indicators, and the overall effect on the economy.  As you recall during the 4th quarter of 2020, we saw a major rally, beginning in both growth and to a lesser degree value stocks.

The market loves to move positively, on the expectations of good news and a change in the economy dynamics.  This was certainly the case during the latter part of 2020 as investors began the expectation of an opening to the economy sometime in 2021.

This, they believed, would be accomplished by “the SHOT” and a potential of herd immunity, called for with some degree of betting odds to be around April as Spring arrives and people spend more time outdoors, another positive to mitigation of airborne carriers.  Then in December and January the vaccines were unleashed to the people and each State managed their distribution, albeit a bit differently.  I had a doctor friend who traveled to NY from Ohio to get “The SHOT” in January.  Certainly, front line healthcare workers rushed without skipping a beat, to get protected.

What is interesting is the stock market’s response to all of this.  After rallying to start 2021, in February the market began to look a bit “rich” and those stocks that had a banner year in 2020, began to lose steam.

By mid-February with the potential opening of society here and abroad, the dollar gained strength, interest rates vaulted higher, and we began to see a re-emergence of Value stocks.

The stay at home, high momentum growth stocks lost some of their appeal and investors were moving money quickly out of these areas of the market and to the beaten-up areas that had lied dormant waiting for the SHOT, namely financials, media companies, retail, transportation companies (i.e., airlines), and oil and energy related companies.

The Sector Rotation commenced in a swift and powerful way.  Where growth stock indices had kept a 10-20% advantage during most of 2020, the opposite has taken hold and now Value is above Growth by an astounding 10% or greater.   Historically, I believe this is the fastest that this has occurred.  Money flows faster and faster due to the news cycle, more people having brokerage accounts, faster electronic trading, and significantly more engaged participants.  The move from sexy stay at home / technology stocks to older less sexy industries has been mined spinning.

OUR VACCINE

Not to be too redundant, but we established MarketGauge to offer investors significantly better tools (BIG VIEW), well-constructed models based on our propriety indicators and discretionary services that offer much better RISK ADJUSTED performance than the majority of buy and hold strategies.  Our overriding thesis has (and will continue to be) that we have The SHOT….

While we have no investment tools to create antibodies or protect you from some unforeseen virus. However, in the investment world risk and loss of capital can be as harmful to your investment portfolio as any kind of virus to your basic health.  Therefore, utilizing our cadre of propriety market tools and indicators that can and will keep you on the right side of the market.  The intended results are less risk and better returns.

Therefore, our “Vaccine”  is designed to help you, the investor, not get hurt should we go into a tailspin in the markets.  Moreover, our cocktail (“SHOT”) would incorporate different investment themes so that we could deliver ALPHA (excess return) in any type of market environment.  However, it is abundantly clear that you need access to all the tools in the toolbox.  We have more than 10 investment model combinations and more coming.

Some of our very best customers and partners started off with one investment strategy, like Alpha Rotation and then discovered the NASDAQ and Small-Midcap All Stars, Complete ETF and then Mish’s Premium Trader and are now using all the tools in the toolbox.  You may feel the angst occasionally that we are in cash because of our Risk VACCINE but may not be aware that our Complete ETF model is up over 26% year to date with a profitable week while some of our other models were sitting dormant in cash.  We encourage you to use a few or all the Market Gauge models to benefit the overall risk and performance of your portfolios.  The added diversification is constructive and will add to your success.  And our loyal long-term customers know that we work hard and put much effort in everyday because we want YOU the investor to be successful, happy and most of all profitable.  We know it can change your lifestyle, help you maintain your standard of living and have an “edge” on other investors who don’t have the “Investment Vaccine”.

Work has progressed on a few new models that will encompass different areas of the market that we do not yet have exposure to.  Additionally, we have been working on tools to optimize the use of our many models and strategies.  And we are partnering with a major technology and financial services entity to be able to deliver ready-made portfolios and trading technology to make it easier to incorporate investment blends and trading disciplines.  It is exciting around here to say the least.  However, we will also incorporate the “Investment Vaccine” to mitigate risk and increase returns.  We are so happy you are along for the ride.

Here are this week’s latest highlights:

  • Risk Gauges are still in bullish mode but bit as robust as they have been with several key intermarket relationships weakening despite the rally
  • US equity benchmarks roared led by Grandpa Russell (IWM) which was up +7.35% on the week and +18.93 YTD while NASDQ 100 (QQQ) struggles to stay positive up+.55% for the year.
  • The QQQ’s closed under its 50 DMA, while the other key US Equity benchmarks are still in strong bull mode
  • Volume patterns across all four US equity benchmarks are showing moderate distribution
  • Long Bonds (TLT) made new lows as quickly rising interest rates overhang the markets
  • The Modern family continues to highlight a major shift is underway with new leadership shifting to the Financial Sector (KRE) and Transports (IYT) and Retail (XRT)while Semi’s (SMH) and Biotech (IBB) stayed weak
  • Big Cap Value stocks that permeate the Dow Industrial are awakening from a deep slumber and it is TSI (Trend Strength Indicator) is now in second position verses the four US equity benchmarks
  • Market Internals / McClellan Oscillator and Volume patterns reversed a sell signal and back into bull mode
  • Gold (GLD and GDX)) and Gold miners might have found some support however players not sure if the stimulus package will ignite inflation and overpower the negative forces which are rise in rates and the dollar
  • Soft commodities (DBA) and Energy (USO) continue to perform well with the prospect of the economy reopening

 

Have a great weekend and best wishes for your trading.


The Investment “VACCINE”

Keith Schneider |

A friend DG, contributed to the beginning of this article “Keith, hope you and Mish are well.  We are in Florida and just wanted to tell you that part of the country is “wide open”.  Few people wear masks here and the discussion with friends, over and over, is about the “VACCINE”.  Thought I would share some insight on how these conversations go here in South Florida. Like a badge of honor or buying a

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