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The Northern Star 11/26/18 Analyzing Data Amid Declines

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Message form Jon


Market Update

This past week we have seen the markets continue their slide as the S&P lost 1.6%, Dow was down 2.2%, and the NASDAQ gave up 2.2% as well. Brexit and Oil weighed heavily on the minds and sentiment of investors while earnings continued their reporting. 1

Over the past weeks of update calls and meetings I have had, I catch myself having to remind or clarify to clientele how the indicators and data we monitor influence our decisions and actions on their behalf. So maybe in this edition, we can run thru the process again.

Revisiting how indicators & data works:

Stormguard is an indicator that takes into account multiple pieces of market data to weigh the overall sentiment and therefore condition of the market (bullish or bearish [good or bad]). Although it updates daily, the trend of the market condition is officially verified at month's end, giving us a signal to follow for the next 30 days. Although many would prefer 12 separate pieces of data culminating to comprise, one would be enough on its own to follow, but we still feel that there are other indications and data that should be a part of our process.

On Oct 19th, this indicator first measured a bear market sentiment.2

Dorsey/Wright measures supply and demand in a variety of investments, sectors, and classes of assets on a daily account. This measure does not take into account any fundamental data whatsoever, only the price action of the underlying investment.

This system will then organize the asset classes into a pecking order from strongest to weakest, demonstrating the best to the worst asset class to invest in on any given day. The system helps to identify investments and strategies to follow as well as helping to demonstrate the condition of the security, sector, or asset class so that we can then assert our strategy and actions accordingly.

On Oct 19th, this indicator was favoring, and still is favoring Domestic Stocks, International, and Commodity as all favored or average areas to invest in. Bonds, Cash, and Currencies were all showing signals to caution and danger.

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In the best interest of brevity, we have other data and information that helps us to remain informed and also to form our opinions of the market conditions, sentiment, and strategy to follow for our clients.

When you get mixed signals, depending on the other data, you can choose to wait or move more conservatively in your approach. Given what is and was happening, we chose to do what we do, which was to analyze the various positions we had for clients and reallocate those that's trend had changed from bullish to bearish. At times, we would have looked for substitutes or like positions to reallocate to, thereby maintaining a similar risk profile and tilt to the markets. In this scenario however, given all that we've seen happening and still is, we choose to reallocate to lower risk profiles for clients to reduce and mute the volatility and chance of loss.

It is easiest to analyze what happened and how to take advantage of opportunities or avert losses AFTER the moment has passed and you have the luxury of fact. It is quite another to analyze and act in real-time not knowing for fact what the future holds. As we say to clients, we will take into consideration all that we know at the time and make the best decisions possible and not look back. IF we are unable to do that, we will sit on our hands and wait until we are able to do that with some sense of clarity.

I liken it to the following analogy whenever a client has hindsight bias. If you played poker and sat down with a professional (one who plays it for a living) to play 10 hands, you could be lucky enough to beat him/her over those 10 hands. If you play that same person over 8 hours, the odds of you being lucky enough to win are very slim.

Like poker, the market can resemble a giant casino at times, and when you win, you can feel like you made the right choice. Those that are able to keep their wits about them, an honest appraisal of reality, and stay true to their plan and approach regardless of winning or losing, as it were, will come out on top in the long-run. It is a marathon and not a sprint!

It has been our pleasure to help a number of clients obtain the ability to retire early and none of them chose to do so. It is not about a destination or $ in your IRA that matters. It is about your why that matters. Know your WHY and stick to what you can control, your attitude and your actions, and everything else will work out just fine!

BTW: During the chaos this week, take a moment and say a prayer for those not with us, whether it be on deployments, traveling, or deceased. Give thanks for your freedoms and luxury to live the way you want to, and remember that in other places around this planet, there are those who do not have that same luxury!

Till we speak again, Enjoy your holiday!

Jon

PS: We are closed Friday after Thanksgiving as well.

Sources:

  1. DurandCapital Weekly Update
  2. http://alphadroid.com/InfoPages/Market-Sentiment2.aspx
  3. https://oxlive.dorseywright.com/dashboard/8934

Analyzing Data Amid Declines

WEEKLY UPDATE - NOVEMBER 19, 2018

Markets experienced more volatility last week, as perspectives on trade, tech, and retail pulled investor sentiment back and forth. Although domestic indexes were up on Friday, November 16, they still posted losses for the week.[1] In all, the S&P 500 dropped 1.61%, the Dow declined 2.22%, and the NASDAQ gave back 2.15%.[2] International stocks in the MSCI EAFE ended the week down 1.51%.[3]

A major topic over the past couple weeks has been the ongoing, significant declines in oil prices. Last week, we did experience one turnaround - on Friday, signs that oil production may decrease next month helped oil prices start to rebound. This pricing increase contributed to S&P 500 energy stocks rising 1.1%.[4]

In addition to oil's current trajectory, let's examine some of the key October data we received last week:

  1. Retail Sales Beat Projections
    October's retail sales were the highest in 5 months - up 4.6% from this time last year.[5] While some of this growth comes from rebuilding efforts after the latest hurricanes, the overall data suggests that consumer spending remains strong. As a result, we may be able to expect ongoing economic growth.[6]
  2. Inflation Picked Up
    The consumer price index had its largest monthly increase since the beginning of 2018. From gas to rent to cars, U.S. retail prices rose in October. Inflation is still relatively stable, however, which should mean that the Federal Reserve will continue on its current, gradual path of interest-rate increases.[7]
  3. Industrial Production Increased
    Industrial production only grew by 0.1% in October, but the latest data also indicated that previous months were higher than originally thought. In fact, mining reached its highest point ever in August as production of oil and gas surged. Ultimately, this report paints a somewhat mixed picture for manufacturing: For now, output remains solid, but manufacturers have several concerns, including trade and global growth. Production has slowed since August, and we'll now have to wait to learn whether this decline continues or rebounds.[8]

Examined together, last week's data may show that the economy still has strength, but questions remain. We will continue to monitor these and many other reports to help gain a clearer perspective on what may lie ahead.

As we look to this week, we want to take a moment to say thank you for being one of our valued clients. We recognize the trust you place in our team and are thankful for your relationship during this holiday - and every week of the year.

Economic Calendar
  • Monday: Housing Market Index
  • Tuesday: Housing Starts
  • Wednesday: Durable Goods Orders, Consumer Sentiment, Existing Home Sales, Jobless Claims
  • Thursday: Thanksgiving Day
  • Friday: NYSE Early Close
Gray


Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

* The 11/16/18 performance numbers for the Dow comparing the past week's results Year-to-date, and to the previous 1, 5, and 10 years results were not available at the time this chart was published.


Sources:


[1] www.bloomberg.com/news/articles/2018-11-15/asia-stocks-to-track-u-s-gain-brexit-slams-pound-markets-wrap?srnd=markets-vp

[2] www.reuters.com/article/us-usa-stocks/sp-dow-advance-on-trade-optimism-nvidia-sinks-nasdaq-idUSKCN1NL1K9

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[3] www.msci.com/end-of-day-data-search

[4] www.reuters.com/article/us-usa-stocks/sp-dow-advance-on-trade-optimism-nvidia-sinks-nasdaq-idUSKCN1NL1K9

[5] www.ftportfolios.com/Commentary/EconomicResearch/2018/11/15/retail-sales-rose-0.8percent-in-october

[6] www.cnbc.com/2018/11/15/us-retail-sales-oct-2018.html

[7] www.marketwatch.com/story/consumer-inflation-posts-biggest-jump-in-nine-months-on-higher-cost-of-gas-rent-used-cars-cpi-shows-2018-11-14

[8] www.marketwatch.com/story/industrial-production-inches-up-in-october-as-fed-finds-record-mining-output-2018-11-16