Timing A Move Out Of Stocks, As They Whip Around And Bond Spreads Blow Out
-
Jason Goepfert
Published: 2019-08-23 at 11:00:04 CST
This is an abridged version of our recent reports and notes. For immediate access with no obligation, sign up for a 30-day free trial now.
Bond blowout
The riskiest segment of the corporate bond market has been suffering, while safer bonds have been less of a focus for sellers.
That raises the specter that some of the most economically sensitive investors in the market are seeing warning signs and getting out early. They haven’t been a consistent group to follow. The four times it happened, stocks rallied over the next two months three times, one of which rolled over into large losses. The one that showed a loss a couple of months later turned into a gain.
A whippy few weeks
The S&P 500 has endured a daily change of more than 0.75% for most of the past 15 sessions. That’s not an unusual amount of volatility during a bear market, but it is a high level when relatively near a high.
This did happen as stocks were forming a major top in 1929, 2000, and 2007, but it failed to lead to a large decline far more often. And even when we did see this kind of volatility cluster those years, the S&P still managed to rise over the next month each time.
A leading new high
The Conference Board Leading Economic Index - a popular leading economic indicator for the U.S. economy - has made a new all-time high.
One way to judge the Conference Board LEI's trend is to look at its 6 month moving average, and whether this average is going up or down.
The following chart looks at:
S&P 500
1. Buy and hold the S&P 500 if the Conference Board LEI is going up. Otherwise, sell and shift into cash.
2. Buy and hold the S&P 500 if the Conference Board LEI is going up. Otherwise, sell and shift into the Bloomberg Barclays U.S. Aggregate Bond Index
3. Buy and hold the S&P 500 if the Conference Board LEI is going up. Otherwise, sell and shift into the Bloomberg Barclays U.S. Corporate Bond Index
4. Buy and hold the S&P 500 if the Conference Board LEI is going up. Otherwise, sell and shift into the Bloomberg Barclays U.S. Treasury Bond Index
5. Buy and hold the S&P 500 if the Conference Board LEI is going up. Otherwise, sell and shift into gold.
With the Conference Board LEI making new highs, this strategy remains a BUY right now (Conference Board LEI's 6 month average is going up).
World exodus
Investors have been selling overseas equities week after week (after week after week…). The selling stretch over the past 3 months is about the most severe since the financial crisis, and it’s even creeping up on that.
Almost perfect
After hitting a 30-day low a week ago, the Dow Industrials Average has seen 3 of the 5 sessions with more than 25 of its members rising on the day. Of the 9 other times that’s happened since 1996, the Dow continued to rise 8 times over the next 2 weeks.
Related Posts:
- 252-Day High in the 10-Year Bond Yield
- What the junk bond market is telling stock market investors
- The only weakness in junk is that there is no weakness
- T-Bonds February Split Personality
- The yield curve has done this only 3 other times
Tagged As:
The post titled Timing A Move Out Of Stocks, As They Whip Around And Bond Spreads Blow Out was originally published as on SentimenTrader.com on 2019-08-23.
At SentimenTrader.com, our service is not focused on market timing per se, but rather risk management. That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence. Learn more about our service , research, models and indicators.
Follow us on Twitter for up to the minute analysis of market action.
Follow @sentimentrader