|The Issachar Fund (LIONX) is about 30% invested in stocks and ETFs. I reduced exposure last week since LIONX positions were not performing as expected. I believe “slugging” % is more important than “batting average” so I try to keep my losses small and let my winners run. I tend to play a little “close to the vest”. I am seeking stocks/ETFs exhibiting strong relative strength, great fundamentals (earnings and sales) and nice looking technicals (chart patterns). I believe my “Buy List” is full of potential winners but I am patiently seeking to “buy right” because I feel that is my first line of defense and a major component of sound risk-management.
The European Union (EU) slashed its GDP outlook for Germany from 1.8% to 1.1% and the Euro Zone from 1.9% to 1.3% for 2019. This is a huge reduction in growth expectations and may confirm what the bond market has been trying to tell us. Global growth is slowing and that could mean lower profits for stocks. US and global bonds across the board have been rising as yields have been falling since October, right after the market peaked. The spread between the 2-year and the 10-year Treasury yields have narrowed to about 16 basis points and could possibly flatten. A flattening yield curve could be a signal of lower expected slower growth. If the spread flattens or turns negative, I would not be surprised to see the stock market head lower to test the Christmas Eve low. The weight of the evidence is confirming my conviction to buy more bonds. I am in the interpretation business and not the prediction business, but it sure feels like slower growth is on the horizon.
Everything looked rosy last week but my “rose colored glasses” are getting foggy. The Dow has survived several tests on the 200-day moving average (dma) on pullbacks recently BUT the Dow is the only index to make it through its 200-dma. The S&P 500 and NASDAQ hit up against its 200-dma where it “stalled and churned” on higher volume. However, both the NASDAQ and the S&P 500 spent the last half of January consolidating their gains along the 50-dma which may now help them clear the 200-dma. Time will tell.
I believe the market is still hooked on the opioid of cheap Fed money. If the Fed were to take away the punchbowl of liquidity/credit, I believe the market would suffer a serious decline for longer than most expect. Powell is not an economist and Trump is not a politician. They both appear to be practical business men and they understand how businesses and countries run. I believe they will do everything in their power to keep this market going in the right direction. If they do their jobs, then I feel the market will head higher. However, a small group of people at the Fed (under political pressure) who try to control a dynamic market may fail, no matter how smart they are. My focus remains on Price and Volume of Leading stocks and the major Indexes.
Bottom line: Stocks and Bonds are trending higher and that may mean the Fed is adding liquidity to the system. If the market can break above its 200-dma on strong volume, then I believe we will head north to test a band of resistance near the October highs which is about 7% away. I believe that it is more important to stay in tune with the trends instead of understanding why they are trending. However, it never hurts to Pray for the Gift of Understanding.
(Portfolio holdings are subject to change at any time and should not be considered investment advice. There is no guarantee that any investment will achieve its objectives, generate positive returns or avoid losses.)
Everything you’ve ever wanted is on the other side of fear.
Verse of the Day:
The chart below shows the net return for the last 12-months of LIONX (red) verses S&P 500 (green). Note the Return and the Volatility (risk). I believe that managing risk is the key to long-term success. Past performance is no guarantee of future results.