The Successful Search for the Golden Egg

April 4, 2021

Weekly Market Outlook

By Keith Schneider

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.

One Comment

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    Larry Cochran

    Thanks for the free service that is excellent for to stay informed in the markets.

    - Reply

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