The Road Most Traveled

February 7, 2021

Weekly Market Outlook

By Keith Schneider

blankThis week I was speaking to a Financial Advisor friend and he was lamenting about the fact that he had several older important clients that became “freaked out” in February-March period last year (2020) and demanded that he liquidate their accounts where today they basically sit in cash.  They got to endure the worst of the fast and significant correction without participating in the rebound and the markets going to new highs recently.

This story reminds me of the one I heard back in 2012-2013 from some of our earliest subscribers.  They got hit hard during the financial crisis when the market was down over 30% (some markets like Nasdaq much more than that) and from emotional “discomfort” and panic, decided to sell out at or near the bottom.  Because of paralysis, these same investors who had worked hard and long their whole life amassing their retirement funds, never quite had the gumption to “get back in” the market” and therefore missed huge returns of since 2009.

Our belief then, as it is now, that very few individual investors (Most Financial Advisors and Wall Street in general) have extraordinarily little knowledge or discipline as to when to get out of the markets and when to get back in.  Even many of the “big hedge fund players” do not have this discipline as evidenced by the lagging performance many of have endured these most recent good market years. Clearly, without a well thought out risk management process, one is doomed to fail or do poorly in the business of investing or trading

We have great markets right now.  How long it lasts is anyone’s guess.  We have highlighted in our commentary a few weeks ago “Priming the Pump” how the central banks, the federal reserve and Congress are working to stimulate the economy and keep the train on its tracks.  This provides plenty of wind on the investors’ backs and keeps speculators continuing to use margin and keep the good times rolling.

But what happens when the merry-go-round stops?  Are investors prepared for the carnage that may ensue?  We have built Market Gauge to help investors, like you, NOT LET THIS HAPPEN.    The indices (SPY, QQQ, Russell 2000 and the DOW) continue to go up without a proper correction or retracement.  It will happen and it is anyone’s’ guess when and how bad it happens. Make sure your risk/trade management is in place before you make any trades.

Here are this week’s latest highlights:

  • Risk Gauges reversed course and are now in full risk on mode with US equity benchmark now up 6% YTD on average
  • Long bonds (TLT)broke down under long term support, steepening the yield curve which if continues could pressure stocks
  • Grandpa Russell (IWM) roared, up +7.83%, for the week and 12.85% YTD
  • Utilities (XLU) and Consumer Staples (XLP) both risk off plays underperformed, confirming the bullish outlook
  • Transportation (XRT) lagged, diverging from Energy (USO), giving a mixed message on the recovery that the market is betting on
  • The Retail sector (Grandma retail (XRT) sold off -10.4% last week as the short squeezes on stocks in that sector abated, but its still up
  • Biotech (IBB)bucked weakness in the Healthcare sector, not surprising with the world focusing on technology to solve medical issues
  • Real Motion (momentum) on the four benchmark stock indexes is still diverging from price action but back into a neutral zone
  • Market Internals reversed course with the McClellan Oscillator back on a positive footing
  • Volatility (VXX) retreated and is on the cusp of breaking long-term support which if it does will confirm more room to this relentless bull run
  • Soft Commodities (DBA) matched the performance in equities and bucked the selloff in Gold (GLD) giving us a confused read on inflation

Have a great week.

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