It was about 6 months ago that I said; “the hardest thing to do over the coming months will be to hold onto winning positions” and I see no reason to doubt that going forward! All four asset classes remain locked into the same bull/bear trends that had their origins at the start of the year. Last week saw a general improvement in equities with both the Dow World and Small Caps both moving a little further away from bullish support levels. The strength in equities was echoed in junk grade bonds with new highs being registered in many junk grade bond indices. US Treasuries are finally beginning to crumble showing signs of weakness and confirming the behaviour of commodities and precious metals. The strength in commodities is broad based with most commodities trading at multi-week highs over the last few weeks. The only real drag on the commodity group has been crude oil. We have been concerned about the weakness of high yield currencies relative to low yield as of late (as per the ETF DBV). However, last week saw some interesting developments with the strength in the USD Index and weakness in the Yen, perhaps a reflection of the increase in money printing by the Japanese central authorities to weaken the Yen.
This is going to be another telling week. Our concerns continue to rest with equities, US Treasuries, and high yield currencies. We need to see the Dow World Small Cap index trade at multi-week highs (above 275), TLT to close below 93, and for DBV to close above the 24 level before we rest easy at night. If these levels were achieved over the coming days then Christmas should be merry for the Bulls(and us)!
In the graphs below we have drawn horizontal lines, which is our attempt to draw a “line in the sand”! In essence if the security/market is trading above the line it denotes a bullish trend and below a bearish trend. What denotes a bull trend? A series of higher highs and higher lows (the opposite applies to a bear trend). Yes this may seem rather simple and somewhat “childs play” but that is exactly how it should be!
Our wealth creation portfolio is up around 22.61% since the beginning of the year with approximately 40% of the volatility of the S&P 500. This portfolio is not leveraged.
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