Q1 2016 Asset Scale Activity:
- Fixed Income/Bonds and CASH surpass Domestic Equities/Stocks.
- Commodities moved up to the #5 spot.
- International Equities slip down to the #6 spot.
- #1 Asset Class: BONDS/Fixed Income
- #2 Asset Class: CASH
- Market Status: BULL (yes, Bull NOT “quite” Bear)
Last week, on the heels of Bonds surpassing Stocks on the Asset Scale — three days later, Cash overtook Stocks on the Asset Scale, moving above stocks for the first time since December 2008. Now, the top two ranked asset classes are “risk off” asset classes for the first time since July of 2008.
This is good and bad — good in that Cash surpassing Stocks pretty much “cements” Stock’s move from the #1 position, further validating, our allocation shifts to be over-weighted in bonds. The bad could be that we may be in for “risk-off” market returns for the foreseeable future.
Ironically, all of this occurred one week after many short and medium term equity indicators hit low risk levels and experienced positive reversals. Most of these reversal signals came from defensive natured stocks such as Utilities and Consumer Staples, which we own.
Of further note is the recent move up in the overall markets; markets are up approximately 4% this week. These are the times when discipline is key. The last time we saw an Asset Scale line-up similar to this was 2008, and for 19 days in October 2011.
In October 2011, for 19 days, Bonds and Cash held the #1 and #2 spots, very short lived followed by a fantastic rebound in the equity markets — What’s different this time around? Will Stocks regain the #1 spot in 19 days like it did in 2011?
Not sure, but it seems unlikely. The “tally count” of buy signals between the #1, #2 and #3 spots in 2011 — Bonds, Cash and Equities had a mere 6 buy signals. Although this may not make much sense, it simply means that all 3 of those spots had a close score — separated by only 6 “points”.
The “tally count” of buy signals between the #1, #2 and #3 spots at this moment (Bonds, Cash and Equities) is 28 buy signals, offering a little more leadership in the #1 versus the #3 spot, further solidifying a need to reduce equity exposure right now.
If not the “head fake” of 2011, is this 2008 all over again? I don’t think so.
In July of 2008, Equities fell very quickly to the #6 spot on the Asset Scale giving material validation to be void equities. Today, we are holding steady at #3 and, again, with the last few days’ rally, it doesn’t look to be slipping to #4 or lower, any time soon. Furthermore, in July of 2008 Commodities held the #1 spot quite solidly (a defensive position), and today Commodities sit very solidly at #5. So, NO running for the hills quite yet.
All in all, remember if we are disciplined to our rules and our indicators, and not to what the TV or media says (or what our gut says), our assets will ultimately be safeguarded. Wealth protection mode is one we take seriously.
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