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Friday, June 29, 2018

Into the Second Half

By Justin J. Kumar

With the first half of the year ending, we are seeing a period of adjustment that could set up a better second half. There could be more volatile trading ahead, as we have seen the VIX fear index rise towards the end of June. It has pulled back, but the geopolitical and socioeconomic landscape has showed some more uncertainty. The market has been moving sideways, even a bit downward, since the Confirmed Up signal came on May 7. Stocks have pared losses to end the quarter. The Cash Comparison has showed no change since April; Cash has climbed above the Global Stock Index again, although not by much. We will have another Long Term Momentum reading at the end of trading this week, and we will report on it the week after next.


The Tactical Indicators have shown some movement this week. The 10-week has slipped below the 40% level, with short-term momentum to the downside. Unless we see a quick turnaround in stocks, the Indicator would continue to trend towards the Low Risk Zone. The Overbought/Oversold Indicator fell to about 6% below the Bull Trend Average, which means that we have reached an Oversold level. The actual price of the MSCI All Country World Index is very near the drops we saw earlier in the year to around the 500-support level. However, since the channel has been rising, we are now at Oversold, but now the Highly Oversold level is closely approaching that key 500-level. Sometimes, markets can correct in an actual drop or as the excesses work off over time. We are seeing both happen here. While we wait for the 10-week to move to Low Risk, we may consider a tactical entry into the markets given this consolidation. The shake out of risk may be winding down, but there could be an additional wave of selling, especially if volatility and uncertainty persist. We have been cautious for the first half of the year, but we are looking for opportunistic risk-reward entry points in the second half of the year.


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The Investor Education Institute (“IEI”) is not an investment adviser registered with the U.S. Securities and Exchange Commission or any state.  The IEI publishes financial publications of general and regular circulation that offer impersonal advice and disinterested commentary and analysis.

The IEI utilizes a Proactive Asset Allocation Model (“PAAM”) that is designed to provide insight into investing in today’s financial markets. PAAM utilizes quantitative-based buy, sell and reallocation indicators, selecting from US and global securities, in seeking to achieve attractive risk-adjusted returns over a long-term investment horizon. As with any investment strategy, IEI has in the past, and may in the future, modify this investment approach and parameters of PAAM in any manner which it believes is consistent with the strategy’s overall investment objective.  In that light, the following material modifications were made to PAAM: in February 2009 (creation of Universe Trend and Cash Comparison Indicators for trend analysis), June 2009 (creation of Long-Term Momentum Indicator for trend analysis), September 2009 (expanded Asset Class Ranking System and started computerized testing), December 2009 (creation of Global Indicator Set for buy and sell signals), April 2010 (inception of PAAM Computer Model), October 2010 (implementation of Tactical Indicators and Signals for short term risk management), January 2011 (modify Global Sell Signal with additional criteria including pattern determination), June 2011 (close Global Signals with stop loss criteria), September 2011 (inception of Long Only Model), May 2012 (modify Global Buy Signal wait period to enhance signal timing), October 2012 (first use of Stock Model), November 2012 (implement ETF replacement criteria), December 2012 (additional historical data for Cash Comparison Indicators), November 2015 (modify Global Buy Signal with additional criteria), June 2016 (modify Tactical Sell signal criteria), May 2018 (expanded Asset Class Ranking System, Tactical Asset Class Selling, Mini-Buy signal implementation); however, none of these changes modified the objectives or overall investment strategy of PAAM. Rather, as noted previously, IEI made these changes to seek to enhance the manner by which it runs PAAM, and thus each change, individually or in the aggregate, might have impacted the performance of PAAM (either positively or negatively, depending upon the efficacy of the changes(s)) after their implementation.  For more information regarding any of these material modifications, please contact IEI at 1-800-504-8505.

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