5 Minute Market Commentary – September 29, 2015

ff_wmu_v2I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Markets finished last week in the red nearly across the board (only commodities were up). As of this writing (2:00pm on Monday the 28th), they’re down another 2%+ this week. As you’ll read below, and see via the chart, it looks like we’re setting up for a bear market. That would mean another 10% or more in losses over the next 6 months. Our models have been warning of this for quite a while, and we’ve been more prepared than most for it.

That said, be prepared for some head fakes along the way. Some of the strongest jumps in the market happen in the midst of a bear market.

Screen Shot 2015-09-28 at 11.12.00 AM

Lesson to be learned: {repeat of last week’s quote} We’re not in an uptrend, nor in a downtrend, just an up and down trend.

 

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There were no changes to our economic or Bull/Bear indicators this past week. They remain positive on the economic front but negative on the stock market front. Historically, this means our models think there is a higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-09-06 at 10.09.47 AM

Weekly Comments

Last week I shared the below comment and chart.

Taking a gander at the charts, I’m now thinking we are likely 2-4 weeks (or slightly more) away from seeing the next change in trend. Per below, a continuation of a larger wedge pattern looks to be forming, where the lows are higher but the highs are lower. These should eventually converge, similar to how they did (and failed to the downside) a couple months ago.

Screen Shot 2015-09-21 at 8.05.50 AM

The markets moved faster than I thought, and clearly broke the wedge pattern to the downside. From a technical perspective this sets the U.S. equity markets up for further declines in the coming months (in my opinion). However, I do think there will be some support in the coming days, perhaps before the end of this week. That would mean at least part of Monday’s big losses could be recovered by Friday.

What to do from here?

Most of our portfolios have been in substantial cash positions for over a month. However, they still have been partially invested and thus have experienced some losses. This is okay.

As investors we should not try to time the market perfectly (because that’s not possible). Rather, we should invest with a “dimmer switch” that slowly adjusts the light down as market volatility picks up. There will still be some losses, but they are bearable, and we’ll still be positioned well to participate in the recovery (which will happen, eventually, even though it sometimes feels like it never will).

Being down as an investor is not fun. But being down 2% to 10% is not hard to recover from. Volatility and short term losses are the price of admission to the long term benefits of being an investor, and most certainly not something to cause panic.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk

5 Minute Market Commentary – September 21, 2015

ff_wmu_v2I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Markets finished last week just about where they started, but zig-zagged along the way. After a couple strong days the Fed decided to change nothing (keep interest rates the same instead of raising them), which oddly, sent the markets for a tailspin.

Have no fear, however, as the markets are up about 1% as of this 11:00am Monday Morning writing. ?

Lesson to be learned: We’re not in an uptrend, nor in a downtrend, just an up and down trend.

Screen Shot 2015-09-21 at 8.02.22 AM

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There were no changes to our economic or Bull/Bear indicators this past week. They remain positive on the economic front but negative on the stock market front. Historically, this means our models think there is a higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-09-06 at 10.09.47 AM

Weekly Comments

Last week I was both right and wrong. Right about the Fed actions driving the market, but wrong about it creating a decisive direction. The markets ground higher leading into the meeting but then stumbled in the trading hours afterwards.

Notes from last week…

One thing I do suspect is that what the Fed does will dictate the markets next move as we’re right about to the point of another stock market wedge, where the highs are falling and the lows are rising. Something needs to break loose, and I think that will happen before the end of this week.

Taking a gander at the charts I’m now thinking we are likely a 2-4 weeks (or slightly more) away from seeing the next change in trend. Per below, a continuation of a larger wedge pattern looks to be forming, where the lows are higher but the highs are lower. These should eventually converge, similar to how they did (and failed to the downside) a couple months ago.

Screen Shot 2015-09-21 at 8.05.50 AM

Until that trend develops, I suspect the markets will continue to go up and down in a rather frustrating manner. In my experience, the only way to get through times like this (with sanity and portfolio in tact) is to stay invested, but in a diversified and conservative manner.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk
Chief Investment Strategist

ff_wmu_v2I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

With a holiday shortened week the market traded with light volume and not much direction. It was actually really nice!

Stock markets were broadly down, but just a touch. Bonds were broadly up, but just a touch. In the end, a week went by and not a whole lot happened financially speaking. YTD and over the past 1 Year the markets are still broadly flat to down.

Lesson to be learned: Hope you enjoyed your long weekend and short work week – you didn’t miss much in the world of finance.

Screen Shot 2015-09-14 at 3.04.28 PM

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There were no changes to our economic or Bull/Bear indicators this past week. They remain positive on the economic front but negative on the stock market front. Historically, this means our models are think there is a higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-09-06 at 10.09.47 AM

Weekly Comments

While very little happened in the financial markets last week, quite a bit is likely to happen this week. The Fed meeting on Thursday, to be specific.

Should the Fed raise interest rates, which they’ve hinted at for most of the year, it would be a sign the Fed believes the economy is strong and therefore there’s little need to be accommodating with lower borrowing costs. On the flip side, there’s no inflation right now, and usually the only time time the Fed raises rates is to fight the effects of inflation. So, a rate raise might be perceived by the market as a bearish sign, as higher rates absent inflation just makes the cost of borrowing money higher, which doesn’t benefit most people or industries.

Of course, the Fed could do nothing, and that may or may not move the markets, as it could just mean the Fed will raise rates later in the year.

One thing I do suspect is that what the Fed does will dictate the markets next move as we’re right about to the point of another stock market wedge, where the highs are falling and the lows are rising. Something needs to break loose, and I think that will happen before the end of this week.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk

5 Minute Market Commentary – September 8, 2015

ff_wmu_v2I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Last week I wrote:

This week marks the end of August, and almost certainly it will end with most stock indexes down a good amount (for the month). It also is pretty critical what happens on Monday as the 50 day market average is just a hair lower than the 200 day market average. This is called the “Death Cross” and historically, pretty much every large scale market loss was preceded by the occurrence (Black Monday of 1987, Dot Com crash of early 2000’s, and Financial Crisis of 2007-2008 just to name a few). If the market is flat or down on Monday, the month ends in Death Cross zone. If it’s up a hundred points or more, then the month ends outside the Death Cross zone.

This is important because there are many tactical asset allocation managers, market timers, and technical traders out there that will automatically start selling their stock holdings if we drop in the Death Cross zone. If the larger investors start to sell, it can get ugly fast, which we saw just a couple weeks ago.

So I’d say Monday is pretty important as a tone setter for the rest of the week, month, and possibly the year.

Turns out I was correct, and the markets sold off badly to start the week (then traded mostly flat the next 4 days).

Lesson to be learned: Sometimes we should be careful what we write.

Screen Shot 2015-09-08 at 6.24.36 AM

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

Since last weeks update our US Equity Bull/Bear Indicator went from 33% Bullish / 67% Bearish to 100% Bearish. Historically, this means our models are think there is a higher likelihood of stock market declines in the near term future (think <18 months).

Screen Shot 2015-09-06 at 10.09.47 AM

Weekly Comments

Nearly all US Equity markets are officially in a “correction” – as defined by a 10% or greater decline from their all-time high. If they continue to drop, the next stop would be a “bear” market – defined as a 20% or greater decline over a 6 month or longer time frame. What are the odds this will happen? According to Sam Stovall, the Chief Economist at Standard and Poors, about 40% (based on all corrections and bear markets since 1945).

So this is pretty interesting. There’s a 60% chance the worst is over. There’s a 40% chance of 10% or greater declines. What’s that supposed to tell us?

In my view, it means we should be defensively invested. In other words, don’t abandon ship, just make sure it’s sea worthy.

We can do this by having a solid long term plan, understanding how much risk we really need to take, then take no more than that. With our longest term assets (stocks, bonds, etc) we can adjust our allocations to something a touch more conservative (we already did this at FormulaFolios a few months ago), and then wait until we feel comfortable before taking more risk in the future. Investing really isn’t that hard. We just have to have the mental strength and intestinal fortitude to follow a plan we know should work (not easy to do).

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk
Chief Investment Strategists