November 16, 2023
The latest research, market indicators and trade summaries from Sungarden Investment Publishing
ROAR Score
(Return Opportunity and Risk)
If my choices are stocks and cash, what % would I have in the stock market right now?
The current ROAR score is
Market in a Minute
If you needed hard evidence about how investing has changed from a few years ago, just look at the stock and bond markets over the past 4 months, since mid-July.
S&P 500 is right where it was then, around 4,500. Small cap index (IWM) is down noticeably, while QQQ and similar ETFs are up solidly.
And then there’s the “bond market” which is my nominee for the most misinterpreted investing term of 2023. TLT (20-30 year US Treasury bonds) traded from $100 to $81 and has spiked up to nearly $90. If listed securities were people, there would be a lot of jealous stocks right now. That’s some whipsaw!
That has had the effect of popping long-term interest rates up, as I show in a chart below.
Bottom-line: the stock market seems to want to rally into year-end, along with the 10-year US Treasury bond rate heading further south. But since I’m about reward-risk tradeoff, I say we remain in the same market climate we’ve been in since late 2021.gh
Rallies AND dips are not to be trusted. Keep the leash short. There have been too many “fakeout-breakouts” in both directions. That really messes with traders, especially newbies. But for those of us who are tactical but look beyond a trader’s time frame, it means something else. You have to take what the market gives you. And right now, that means that if this industry ETF or that sector ETF can rally for a bit, don’t relax and think it won’t turn back on a dime.
Remember: bear markets are not as simple as prices crashing. That’s a crash. Bears are about frustrating the heck out of you with rug-pulls and traditional bull market rules failing more often than usual. Oh, and did I mention that T-bills are still the best thing going? That’s why our model portfolios start with that “core” holding, as we look to move beyond that low-risk/moderate return class of ETFs to earn additional return. But not at all costs. Rule #1: Avoid Big Loss.
As you know if you read our special Tuesday (11/14) alert, we raised our ROAR Score from 10 to 25, ending a 2-month stay at the 10 level. That means our 2-ETF model portfolio is now allocated 25% to SPY and 75% to BIL. The best way to characterize this upward adjustment is that, to paraphrase Fed Chairman Jerome Powell, the stock market is “thinking about thinking about” busting a move higher. At the end of the day, we’ll need more evidence to get to and above the 50 level on the ROAR Score, which would indicate that we think investors can pursue return with more reasonable levels of risk than we’ve seen the past 2 years.
More on this in the premium subscriber section. For everyone, here is a chart of note:
It’s all about those rates
So it seems interest rates are the heavy hand influencing the stock market. I suspect that will get old soon, the way oil price spikes and Fed meeting dates and key earnings reports get old quickly. The market’s attention isn’t that sustained.
Above chart in summary: despite the “feeling” many investors probably get right now that long-term bonds are a screaming, generational buy, I’m settling for “looks promising.” Because when we cut through the noise, we see that the red and blue lines (end of September and this week) are nearly identical. The yield curve freaked out for a bit on the long end, but now it is back to where it was. That’s my perspective. But all the while, rates nearly out to 2 years have stuck at 5.0-5.5%. As the lead character in the Borat movies liked to say when hearing good news…”VERY NICE!”
Other quick news and notes:
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S&P X-Ray
The S&P X-Ray tracks our latest projected trading ranges
for the S&P 500
