The Pause that Refreshes?

Download pdf version – Market Watch – Sept 10, 2020

 

“About twice a year we forget that markets do this about twice a year.” Morgan Housel


Bottom Line:

Regardless of the short-term volatility, it seems likely that stocks are in the early innings of a major advance. The strength in copper argues for this, as do many other risk barometers, including: a steepening yield curve, strength in discretionary stocks relative to staples stocks, as well as the relative strength of the Dow Transports vs. the Utilities.

In the Markets
Below is a chart of the Nasdaq 100 Index, the strongest index in the world this year populated by the largest growth companies, including the big tech names that have driven most of the gains this year.

  • I expect that we have entered a choppy period for the coming weeks that will see the broader market struggle by declining and going sideways.
  • You can see that, starting last week, the NDX dropped 10% in three days, hitting the 50-day Moving Average (the blue line).
  • It bounced back up to the dotted green line, which is the 21-day Moving Average, which acted as a support line for the market since coming off of the bottom in March.
  • So far, the market cannot reclaim that line.
  • The next leg, higher or lower, will likely be indicated by which ever line is crossed next, the 21-day dotted line or the 50-day blue line.
  • Growing evidence suggests it will be the lower 50-day line.
    • There continues to be measurable complacency by the number of people carrying portfolio insurance, or Put options, which act as a hedge by moving higher in a down market.
    • The bottom pane in this chart shows that the number of stocks in the market that are above their own 50-day moving average has also been declining since June, showing weaker breadth, or participation as the market hit a new high.

 

 

 

Conclusion

Our view, based on weight of the evidence, is that major US and Canadian stock markets go higher this year. In the short term, however, we appear to be in for some corrective action.

This would likely be the best outcome for stock investors as a pause, or short term stock market decline, could be the pause that refreshes.

We remain completely open to any eventuality that the markets bring. Our strategies, tactics and tools will help us to successfully navigate whatever happens as we focus on monitoring supply and demand signals that the market provides us.

Have a very good weekend, please call or email with any questions, and we’ll be in touch with you soon.

 

Peter Schenk
CMT, CIM | Portfolio Manager

 

 

Words we live by:

“Deliver to the world what you would buy if you were on the other end. There is huge pleasure in life to be obtained from getting deserved trust. The way to get it is to deliver what you would want to see if you were on the other end.”

-Charlie Munger

  “Strive not to be a success, but rather to be of value.”

-Albert Einstein

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The opinions contained herein are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Wellington-Altus Private Wealth. Assumptions, opinions and information constitute the author’s judgement as of the date this material and subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. All third party products and services referred to or advertised in this presentation are sold by the company or organization named. While these products or services may serve as valuable aids to the independent investor, WAPW does not specifically endorse any of these products or services. The third party products and services referred to, or advertised in this presentation, are available as a convenience to its customers only, and WAPW is not liable for any claims, losses or damages however arising out of any purchase or use of third party products or services. All insurance products and services are offered by life licensed advisors of Wellington-Altus. Wellington-Altus Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. All trademarks are the property of their respective owners.