The market has been on quite a roller coaster ride the last 3 months. In August and September, our systems got widespread sell signals across the board. All the charts and indicators showed the typical characteristics of the early stages of a new major bear market. Because of that, for most of the month of October we were positioned defensively to protect against a market decline. But, instead, the market rallied ferociously with some serious velocity and magnitude. Unfortunately, because of our position we didn’t participate in the rally as many of our systems don’t get a new buy or sell signal until the end of each month.
So, with October ending, many of our strategies got signals to buy back into the market. We’re still a little skeptical of this rally; economic data hasn’t been great and the rally could just be enough to squeeze out the sellers before making another move down. Regardless of our opinions, we follow the rules of our strategies because that’s how we get an edge on the market over time.
So for the time being, we have an ‘all clear’ to move back into stocks. However, if the S&P falls below 2030, that’s where we would start to reduce our market exposure again.
As for the trades we made, our Sector Rotation system purchased Software (IGV), Real Estate (IYR), and Leisure (PEJ). Other systems moved into the ETFs that follow the broad market (IVV, FEX).
The Leisure sector is all about the holidays. This fund invests heavily in consumer discretionary companies like Starbucks and Disney as well as many Airline and Travel related companies. We think that low fuel costs will continue to boost the airline and travel industry and help this sector perform well.
Real Estate struggled from February through August, but now has put in a nice base of support and is showing better relative strength than most other sectors of the economy.
Software looks a bit expensive on the fundamental side, but the sector setting new highs and many of the larger holdings are breaking out. So, there is some risk here but hopefully the momentum will continue to carry this sector higher in the near term.
The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.